2020 is the final year of the “Thirteenth Five-year Plan” and the planned launch year for the “Fourteenth Five-year Plan.” After the slowdown and adjustment of the energy storage industry in 2019, stakeholders have strong hopes for industry development in 2020. Yet the global outbreak of COVID-19 has had deep impact on the industry, disrupting the rhythm of development for both domestic and international energy storage. Yet if we look toward the “Fourteenth Five-year Plan,” we can see that the current challenges are not enough to derail the continued growth of energy storage. The energy storage industry, which is forging ahead despite the crisis, is set to welcome a new, broader space for development.
According to statistics from the China Energy Storage Alliance Global Energy Storage Project Database, as of the 2019 year’s end, China’s operational energy storage capacity totaled 32.4GW (including physical, electrochemical, and thermal energy storage), an increase of 3.6% from 2018. Of this capacity, electrochemical energy storage projects totaled 1709.6MW, an increase of 59.4% compared to 2018, a significant slowdown compared to the 175.2% growth rate of 2018. Nevertheless, the 636.9MW of increased capacity in 2019 suggests that China’s energy storage market continues to grow steadily.
A Review of Energy Storage Growth During the “Thirteenth Five-year Plan” Period
During the “Thirteenth Five-year Plan” period, China’s energy storage industry began to develop rapidly. According to statistics from the CNESA Global Energy Storage Project Database, by the end of 2016, China’s operational energy storage capacity totaled 24.3GW (including physical, electrochemical, and thermal energy storage), of which electrochemical energy storage totaled 243MW. In comparison, by the end of 2019, China’s total operational energy storage projects (including physical, electrochemical, and thermal energy storage) increased by 32%, with electrochemical energy storage project capacity increasing more than seven times. The cause of this rapid growth was not just a small base in the initial development stages, but the creation of conditions conducive to industry development.
The first condition is the rapidly declining costs of energy storage, providing a foundation for commercial energy storage applications. In 2020, a CNESA survey of major manufacturers revealed that Li-ion battery system costs (excluding PCS) have dropped 1,000-1,500 RMB/kWh, bringing applications to a point of “breaking even,” helping to provide a foundation for further commercial development of energy storage.
The second condition is the release of government policies which have directly supported the development of energy storage. In 2017, the Chinese government released the Guiding Opinions on Energy Storage Technology and Industry Development, the first comprehensive national energy storage policy in China, providing support for a “clean, low-carbon, safe, and efficient” modern energy system guided by energy storage. The refinement of policy related to ancillary services, energy storage’s primary application, as well as policy developments in regions including Qinghai, Guangdong, Jiangsu, Inner Mongolia, and Xinjiang, have created a wave of energy storage construction and development.
The third condition is the deployment and operation of large-scale energy storage projects, which have proven the effectiveness and value of energy storage in its primary application area. According to CNESA global energy storage database statistics, as of the end of 2019, global electrochemical energy storage projects totaled approximately 800. The deployment of these projects has demonstrated how storage can improve the stability and flexibility of energy systems, increase operational efficiency, balance power output and demand, and other functions which help solve some of the current structural challenge of the energy system.
The fourth condition is that China’s energy storage value chain has developed market players with international competitiveness. The current energy storage industry in China has developed a relatively complete domestic value chain, from material production, component manufacture, systems integration, and materials recycle. Although there is still some reliance on foreign technologies, China has developed many of its own mainstream and frontier energy storage technologies. Examples of leading energy storage vendors which have been nurtured by the value chain include CATL, BYD, Rongke Power, CRRC, and other companies which have created a foundation for China’s large-scale energy storage development.
Now in 2020 as we reach the end of the “Thirteenth Five-year Plan” period, we can summarize how energy storage has achieved rich results over the past five years, achieved the goals of the Guiding Opinions, and entered the early stages of commercialization. The critical value of energy storage to the energy system transition has now been demonstrated and verified.
Exploring the Development Direction of the Energy Storage Industry in the “Fourteenth Five-year Plan” Period
2020 is the year in which the “Fourteenth Five-year Plan” will be published. The energy storage industry is hopeful that this national-level development policy will help create a market environment which will support energy storage. According to CNESA’s current information on the policy, the “Fourteenth Five-year Plan for Energy Development,” “Fourteenth Five-year Plan for Electric Power,” “Fourteenth Five-year Plan for Energy Technology Innovations,” and the “Fourteenth Five-year Plan for Renewable Energy” have all included energy storage in their planning, with some directly citing energy storage topics as subject for research. CNESA has had the privilege of participating in the drafting of these plans. Below, we examine some of the themes of the “Fourteenth Five-year Plan” as they relate to energy storage.
With focus on energy storage applications, overcome current technology development bottlenecks. High safety, long lifespans, high efficiencies, low costs, large-scales, and sustainable development are the prime dimensions of focus for frontier energy storage technologies. As Li Hong of the Chinese Academy of Sciences Institute of Physics stated at the annual meeting of the China Energy Research Committee, during the “Fourteenth Five-year Plan” period, the goals of large-scale energy storage technologies will be development of long duration, short-to-medium duration, and high efficiency energy storage technologies, decreasing prices to 0.2RMB/kWh or lower, increasing energy storage equipment lifespans to 15-30 years, development of modularization, standardization, and intelligentization of critical technologies, development of second-life applications, whole life cycles, and sustainable critical technologies, and the development of highly safe, reliable, and advanced large-scale critical technologies.
On February 11, the Ministry of Education, National Development and Reform Commission, and the National Energy Administration jointly released the “Action Plan for Development of Energy Storage Disciplines (2020-2024),” which called for increasing the cultivation of talents in the field of energy storage, strengthening independent innovation abilities in core critical technologies, promoting development of the energy storage industry through the integration of industry and education, and promoting the development of critical technology research so as to reach a level of international competitiveness. The release of this document has helped to provide sustainable support for continued energy storage technology innovations.
Integration of energy storage with renewables will become a leading trend. During the “Fourteenth Five-year Plan” period, as the installed capacity of renewable energy continues to increase, so too will peak shaving demands, providing new opportunities for energy storage to become a main method of regulation. Currently, Tibet, Xinjiang, Qinghai, Inner Mongolia, Jiangsu, Anhui, Zhejiang, Hunan, and Shandong have released policies which provide grid connection priority to renewable energy stations which are paired with storage, provide increased hours of generation, and other incentive policies. CATL has focused on this market, forming a joint venture company with State Grid Integrated Energy Service Group to advance the investment, construction, and operations of energy storage in the renewable energy sector in Xinjiang.
Direct policy promotion is certainly beneficial, yet more consideration must be given to critical challenges in order to ensure long-term development. First is determining whether the amount of storage deployed is appropriate and the most optimal for the system it is deployed to. Second is determining how obstructions to energy storage investment costs can be removed, and how investment can be combined with the construction of the electricity market to achieve a reasonable market return before solar/wind+storage systems achieve grid parity. Third is to consider how to prevent unreliable entities from expelling or occupying the market space of reliable ones, prevent the use of low-quality energy storage systems, and prevent the inefficient use of energy storage resources.
Grid-side energy storage may see a resurgence in the next regulatory cycle. Following the recent government policy announcement preventing energy storage investment costs from being included in T&D power costs, grid-side energy storage, a recent area of major growth, experienced a virtual stop in new project development. Yet the completion and commissioning of grid-side energy storage projects in Jiangsu, Henan, and Hunan in 2019 helped prove the benefits of grid-side storage for peak shaving, frequency regulation, load shifting, demand response and other applications, as well as increasing system safety and stability of operations. In 2020, China State Grid’s new chairman Mao Weiming stated, “we must actively research and explore development paths and models for energy storage, match UHV construction with renewable energy consumption demand, and form a set of mature technologies and business models to achieve balanced development between energy storage and the power grid of the future.” The “Fourteenth Five-year Plan” period will provide a new regulatory period for T&D pricing. Many are watching closely to see if the new cycle of regulations will help provide new development opportunities for grid-side energy storage.
A reasonable price transmission mechanism is needed to further ancillary services market reforms. Ancillary services (primarily frequency regulation) is currently the energy storage application in China with the most developed commercial value. According to CNESA Global Energy Storage Database Statistics, China’s electrochemical energy storage capacity in ancillary services applications totaled 270.3MW, or 15.8% of the total energy storage market. In recent years, as ancillary services markets have begun to take shape across different regions, energy storage projects have developed rapidly. Yet payments for ancillary services are still quite limited within the on-grid electricity prices in China. With renewable energy capacity continually rising within the grid, peak shaving and frequency regulation demands also rise, and in turn, so do costs. Current ancillary services markets are constructed as a “zero-sum game” between generation companies. If a mechanism is not established which can reasonably transfer the costs to power customers, the ability to regulate resources within the power grid will be limited, and renewable energy resources will be unable to develop within the grid on a large scale.
Of course, with electricity prices in China’s economy continuing to fall, it is difficult to launch a policy in which the costs of ancillary services are passed directly on to customers. Yet as power industry reforms progress, we may be able to optimize the market mechanism in stages between regions which already maintain spot markets and those which do not yet have spot markets, and create a reasonable mechanism in which the beneficiary is the one who foots the bill for services.
New infrastructure, new applications, new markets. On March 4, the Politburo Standing Committee held a meeting in which General Secretary Xi Jinping stressed the need to increase public sanitation services, increase investment in emergency supplies, and increase development of new data infrastructure such as 5G networks and data centers. 5G infrastructure will require significant new energy consumption which must be supported by small-scale, high-density energy storage systems, which is why lithium-ion batteries have become the primary choice for 5G telecom station backup power. So far in 2020, China Tower has released 24 invitations for bids for projects in 20 provinces. The total estimated budget for these projects exceeds 89,450,000 RMB, with most of the invitations calling for the use of LiFePO Li-ion batteries. In early March, China Mobile also released a purchase order for 1.95GWh of LiFePO Li-ion batteries. In the view of industry insiders, the telecom industry has now reached a turning point in which lead-acid batteries are being replaced by Li-ion. Installation of Li-ion battery systems can also provide peak shaving and TOU energy management, avoiding the need for capacity expansion and lowering network construction and operations costs. Reports have shown that the use of energy storage in China Telecom Qingdao’s telecom stations can save an annual 13,800 RMB per station.
At the same time, we must also consider the influence of the COVID-19 epidemic on energy storage. During a recent CNESA webinar, Liu Hao, Director of Operations at State Grid Henan Comprehensive Energy Services Co., provided an analysis of what trends may be seen in energy storage applications following containment of the epidemic. Liu Hao spoke confidently on the future development of storage, stating that coordination between energy storage and comprehensive energy services will provide “energy digitalization, streamlining, service orientation, diversification,” and other valuable benefits which will increase intelligent use of energy and make full use of energy storage’s value.
Summary: in December 2019, the National Development and Reform Commission Vice Director Lian Weiliang spoke at a symposium on energy storage, stating that energy storage will play a key component in future energy structure developments concerning the safe and stable operation of the power system, large-scale development of clean energy, and power system reforms.
As the “Fourteenth Five-year Plan” continues to be drafted and soon begins implementation, China’s energy storage industry will soon realize the development goals for the “Fourteenth Five-year Plan” put forth in the “Guiding Opinions,” including broadening of energy storage applications, mastering of internationally advanced critical technologies and equipment, development of a complete energy storage standards system, development of a mature energy storage market based on diverse business models, and the fostering of internationally competitive market entities. As the scale of the energy storage industry continues to grow, energy storage’s role in promoting energy reform and connecting the “energy internet” will become even more apparent.
Author: Li Zhen, Deputy Secretary General, China Energy Storage Alliance