Recently, the Qinghai provincial Development and Reform Commission, Department of Science and Technology, Department of Industry and Information Technology, and Energy Administration jointly issued the "Notice on the Distribution of Several Measures to Support the Development of the Energy Storage Industry (Trial)" (hereinafter referred to as the "Notice"). For “renewables + energy storage” and "hydropower + renewables + energy storage" projects which produce and store electricity sold to the provincial grid, an operating subsidy of 0.10 RMB per kilowatt hour will be provided. In addition, Qinghai’s Industry and Information Technology Department has announced that for projects with 60% or more of their batteries manufactured in Qinghai, an additional 0.05 RMB per kilowatt hour subsidy will be provided.
According to reports, the "Notice" subsidies will be available for electrochemical energy storage projects developed in 2021 and 2022, and will be settled monthly by the grid company according to the amount of electricity provided. The subsidy funds will be considered a part of the Qinghai grid’s second supervision cycle T&D price reduction reserve funds. The subsidy period is tentatively set from January 1, 2021 to December 31, 2022.
According to an expert at Kaiyuan Securities, Qinghai has always been a leading region for domestic energy storage pilot projects. The introduction of the new energy storage subsidy policy will provide valuable learning experience for other provinces who are likely to follow suit.
Alleviating the Challenge of High Cost Renewables+Storage
Since 2020, the national government has repeatedly expressed support for the development of energy storage, and many provincial governments have issued supporting documents for energy storage at the power generation side. Inner Mongolia, Xinjiang, Liaoning, Hubei, Jiangxi, Shandong, and other regions have recommended or encouraged newly constructed wind and solar projects to deploy energy storage systems. Yet industry disputes over renewables and energy storage have caused continuous challenges. One focus of controversy is who should bear the cost for energy storage. In the absence of both subsidies and a reasonable profit model, can renewables+ storage continue to develop? The Qinghai energy storage subsidy policy will provide some alleviation to the cost challenge of deploying storage with renewables.
Li Zhen, deputy secretary-general of the China Energy Storage Alliance, believes that the release of Qinghai’s energy storage subsidy policy is good for the industry. The policy makes clear that energy storage is prioritized to ensure a certain number of consumption hours, and provides clear standards for subsidy implementation. At the current transition stage in which a mature spot market has yet to be established, the subsidy policy provides reasonable compensation for energy storage services, provides an innovative mechanism for the co-development of energy storage and renewable energy, and provides a model which may inspire related policies in other regions of the country.
Huang Bibin, director of the State Grid Energy Research Institute's New Energy and Statistics Institute, stated that an increasing number of provinces are considering the system regulation challenges of connecting large-scale renewable energy to the grid, and have begun to require renewable energy projects to be equipped with energy storage in order to meet grid-connection requirements and improve the regulation capability of the entire power system. This may become a trend or transition method under the current power market conditions, in which much remains to be improved. Although these deployments have increased the cost of renewable energy for investors, they have also supported energy storage industry development.
Peng Peng, secretary general of the China New Energy Power Investment and Financing Alliance, told reporters that in the past, provincial policies requiring energy storage allocation with renewable generation did not provide any subsidies for energy storage, and that Qinghai’s policy is the first to do so. This is a big step forward for the industry.
However, one anonymous expert from the Energy Research Institute at the National Development and Reform Commission believes that the subsidy policy issued by Qinghai can only partially solve the problem of excessive energy storage allocation costs, and cannot completely resolve all disputes over renewable energy and energy storage allocation. Additional points of contention when pairing renewable energy and energy storage include the proportion of energy storage capacity which should be required for each system, and the manner in which energy storage should be deployed.
Lack of Assessment Standards for Energy Storage Systems
According to data from the National Energy Administration, during the first three quarters of 2020, Qinghai’s solar curtailment was 940 million kWh, a rate of 7.0%, and a year-on-year increase of 1.2%. The rise of the curtailment rate makes the need for energy storage increasingly urgent. The release of Qinghai’s new subsidy policy will help to increase industry willingness to deploy energy storage.
While the current version of the policy makes clear provisions on subsidies, it does not put forward specific indicator requirements for the energy storage system. Li Zhen told reporters that energy storage is an emerging technology, and related standards are gradually being established. At present, standards have been released for the construction, grid connection, and testing of energy storage stations. Regions may set corresponding entry thresholds in accordance with national standards to ensure the construction quality of the energy storage system. In addition, because Qinghai’s policy will subsidize energy storage based on the amount of electricity generated rather than subsidizing initial investment, there is decreased risk of fraud related to deployment of substandard or inadequate energy storage systems.
According to Li Zhen, "If we calculate according to the requirements of the “Notice,” which ensures that energy storage facilities are utilized for no less than 540 hours, then an energy storage system discharging for 2 hours a day will see utilization of 270 days or more. As the ancillary services market and spot market develop and improve, energy storage may participate in primary and secondary frequency regulation. With a certain amount of profits guaranteed, energy storage application scenarios will become more varied, and investment recovery and project profitability will become more feasible. As long as there are reasonable market applications, we can avoid the possibility of bad market entities driving out good ones, and more investment will be driven into the market to build more high-quality energy storage projects."
Peng Peng believes that market maturity cannot happen overnight. In the early stages in which data is lacking and experience is limited, only a simple management model can be used for an initial batch of projects, followed by a gradual refining of management. Therefore, for the time being, there are only subsidies, without standards and management regulations. Although some companies may adopt lower-priced energy storage equipment out of cost considerations, the possibility of compensation being awarded to substandard projects is unlikely under the current diversified regulatory methods.
Huang Bibin stated that as a "Notice", it is not necessary to clarify all contents. In the future, as more projects are advances, policies on construction quality or grid-connected standards may be issued, as well as detailed implementation rules for subsidies.
Policy Implementation Requires Refinement
As the first domestic subsidy policy addressing energy storage and renewable generation pairing, many difficulties may still arise in the specific implementation process.
One industry expert interviewed agrees that to receive the subsidy, electricity sold to the grid must be electricity that is within the province. But determining what electricity is considered “provincial” is a problem. As the anonymous expert stated, “Is it possible to consider all power which is not transmitted by UHV lines as part of ‘provincial’ power? The policy requires further refinement in order to answer this question."
In addition, according to the "Notice", power dispatched by electrochemical technologies in “renewables+storage” and “hydropower+storage” projects will no longer participate in Qinghai's annual direct power trading market, but will instead have payment settled through Qinghai’s renewable energy settlement base price. According to the anonymous expert above, "It is not explained how the base price is determined. I personally assume that it will be the average settlement price for renewable energy. However, whether this average price will be based on "wind+solar," "wind+solar+hydropower," or just simply ‘solar’ still needs to be clarified. "
Energy storage is still in the early stages of development. The main factor restricting the deployment of energy storage paired with renewable generation is that the cost of energy storage is not transmitted through a reasonable market mechanism, and that the full benefits of energy storage cannot be fully realized under the current structure. Although the "Notice" provides clear utilization hours and subsidy criteria for energy storage, Li Zhen believes that subsequent implementation rules are needed to ensure successful policies and guarantee the benefits of energy storage. For example, how should energy storage utilization hours be measured? How should the income which energy storage generates be settled?
"In addition, Qinghai is the first province to construct independent energy storage stations which participate in peak shaving. This new policy does not specify charging and discharging prices for these independent energy storage stations, nor does it specify their transaction settlement mechanism. These issues need to be further refined." Li Zhen said. "Finally, over time, we also need to determine how many flexible regulation resources Qinghai needs, and how many energy storage stations need to be deployed. We also must work to further understand and create a plan for how the power grid can ensure that energy storage utilization reaches 540 hours. The clearer the policy, the more beneficial it will be to stabilize investment and create a good business environment."
Author: Han Yifei, China Energy News