Despite the effect of COVID-19 on the energy storage industry in 2020, internal industry drivers, external policies, carbon neutralization goals, and other positive factors helped maintain rapid, large-scale energy storage growth during the past year. According to statistics from the CNESA global energy storage project database, by the end of 2020, total installed energy storage project capacity in China (including physical energy storage, electrochemical energy storage, and molten salt heat storage projects) reached 33.4 GW, with 2.7GW of this comprising newly operational capacity. Newly operational electrochemical energy storage capacity also surpassed the GW level, totaling 1083.3MW/2706.1MWh (final statistics to be released in CNESA’s Energy Storage Industry White Paper 2021 in April 2021). In 2020, the year-on-year growth rate of energy storage projects was 136%, and electrochemical energy storage system costs reached a new milestone of 1500 RMB/kWh. Just as planned in the Guiding Opinions on Promoting Energy Storage Technology and Industry Development, energy storage has now stepped out of the stage of early commercialization and entered a new stage of large-scale development.
Energy storage first passed through a technical verification phase during the 12th Five-year Plan period, followed by a second phase of project demonstrations and promotion during the 13th Five-year Plan period. These phases have laid a solid foundation for the development of technologies and applications for large-scale development. In response to carbon neutralization goals, initial development plans for the energy storage industry have been set, while the strategic position of energy storage in the reformation of China’s energy structure will be further clarified during the 14th Five-year Plan period. The national government is also currently coordinating the development needs for a variety of application fields. We look forward to seeing national and local step-by-step approaches to resolving the development bottlenecks that have plagued the energy storage industry, and the creation of refined implementation plans which will help transform energy storage into a new sector for economic growth. During the 14th Five-year Plan period, energy storage technology will see further breakthroughs in performance improvement and cost reduction. With the establishment and improvement of policies and market mechanisms, the industry will achieve rapid growth, and China will have the potential to become the largest market for energy storage in the world.
Throughout 2020, energy storage industry development in China displayed five major characteristics:
1. New Integration Trends Appeared
The integration of renewable energy with energy storage became a general trend in 2020. With increased renewable energy generation creating pressure on the power grid, local governments and power grid enterprises in 20 provinces put forward “centralized renewable energy + energy storage” development incentive policies. The policies signify that a consensus has been reached on the importance of energy storage technology to the large-scale application of renewable energy. In order for this development to continue, it will be important to create a rational plan for the deployment of energy storage, ensure the quality of project applications, and to rely on market mechanisms to determine costs and compensation. Profitability is the key to sustainable development.
"Unified" energy projects saw large-scale demonstration and promotion. The “Guiding Opinions on ‘Unified’ Energy Projects” issued by the National Development and Reform Commission and the National Energy Administration states a goal of increasing energy storage at the power side and load side to achieve a flexible and robust grid system. Since the release of the policy, numerous state-owned enterprises and provincial/municipal governments have signed "unified" demonstration project agreements. The planning and implementation of these projects will help to explore development paths and business models for energy storage under diverse scenarios and local conditions.
The value of energy storage in “cross-domain” applications has gradually emerged. The role of energy storage in the safe and stable operation of the power system is becoming increasingly prominent. Energy storage has also begun to see new applications including generation-side black start services and emergency reserve capacity for critical power users. As the construction of new infrastructure such as 5G cell towers, data centers, and EV charging stations accelerates, many regions have used price policies and financial support policies to support the construction of "integrated energy stations", which has helped to extend the “cross-domain” applications of behind-the-meter energy storage.
2. New Rules Gradually Removed Obstacles for Energy Storage to Participate in the Market
In 2020, regional electricity market rules helped establish energy storage’s identity in the ancillary services market, swept away initial obstacles to participation in market transactions, defined basic requirements for third-parties and consumer-side resources to participate in ancillary services, and defined the basic conditions for ancillary services costs to be gradually transmitted to the power consumer. At the same time, under the existing cost-sharing mechanism, energy storage entering the market has also brought risks to the use of ancillary services funds, and local policies have been explored to combat these challenges. For example, market rules and compensation standards have been frequently adjusted in Guangdong, western Inner Mongolia, Qinghai, Shanxi, Hunan and other regional markets. As a result, it is necessary to reasonably plan how projects enter the market while ensuring energy storage can also compete fairly within the market. With the large-scale penetration of renewable energy in the grid, the idea of determining peak and off-peak electricity prices according to net load has become popular. Continued regional adjustments to the price difference between peak and off-peak power have improved the economy of behind-the-meter energy storage, and the charging and discharging strategy of energy storage projects continues to be adjusted accordingly.
3. New Models Have Appeared, Led by "Sharing" and "Leasing"
In the past, energy storage projects widely relied on an energy management contract model. In recent years, with the introduction of relevant supporting policies and greater penetration of specialized energy storage applications, new models have begun to emerge. One such model is the shared energy storage model first launched by Qinghai Province, which has helped to increase the implementation of independent energy storage stations. Another such model is the leasing model for front-of-the-meter energy storage projects adopted by Hunan province in 2018, and the subsequent 2020 upgraded version of the leasing model which applied to energy storage paired with renewable generation and designed to split investment risks between each entity. An additional agent operator model has also emerged. This model allows third-party companies to integrate distributed energy storage systems and EV charging stations through a centralized control station to participate in grid services. The agent operator model is in part a product of the pursuit of value stacking of energy storage applications, and at the same time opens the links between power supply, power grid, and the consumer to realize the value of connecting energy storage. The continued exploration and implementation of new models will greatly promote the value of energy storage applications and the profitability of energy storage projects.
4. Continued Breakthroughs in Technology and Continued Decline in Costs
Breakthroughs have been made in a variety of energy storage technologies. Lithium-ion battery development trends continued toward greater capacities and longer lifespans. CATL developed new LiFePO batteries which offer ultra long life capabilities, while BYD launched "blade" batteries to further improve battery cell capacities. Other energy storage technologies such as vanadium flow batteries and compressed air energy storage saw new breakthroughs in long-term energy storage capabilities. These include the vanadium flow battery stack developed by the Dalian Institute of Chemical Physics, which adopts a weldable porous ion-conductive membrane, and the successfully completed integration test of the first 100MW CAES expander by the Chinese Academy of Sciences Institute of Engineering Thermophysics. Industry attention was also devoted to the effectiveness of applications and the safety of energy storage systems, and lithium-ion battery energy storage systems saw new developments toward higher voltages.
Energy storage system costs continued to decline. Take lithium-ion battery energy storage systems as an example: as battery production scales and manufacturing processes continue to improve and energy storage systems become more highly integrated, system costs have fallen by about 75% since 2012, nearing ever closer to solar/wind parity. By 2020, the costs of energy storage systems fell to 1500 RMB/KWh, bringing storage systems closer to economic feasibility.
5. New Forces Emerged, and Market Players Increase their Efforts to Participate
First, the capital market continued to increase investment in the energy storage industry. Many financial institutions invested in energy storage companies. Examples include Hillhouse Capital's 10.6 billion RMB investment in CATL, and the launch of IPOs by numerous energy storage companies such as Pylontech and Tianneng to raise funds to expand business. Second, new forces have sprung up, accelerating the deployment of energy storage. Traditional energy storage technology and system integrators such as CATL, Sungrow, BYD, and Narada continued to increase investments in the energy storage, while Tianjin Lishen signed an equity transfer agreement with Chengtong. At the same time, new forces in the domestic energy storage market continued to emerge, including Huawei, Envision, and Mingyang Smart Energy. In addition, solar PV companies such as Longi, Tongwei, and TrinaSolar began focus more attention on energy storage. Third, energy storage companies saw deeper integration with other industries. For example, CATL invested in a power engineering design service company, and established cooperation with the State Grid Integrated Energy Services Company. BYD partnered with Canadian Solar, Goldwind, China Resources, Chint and other domestic and international energy developers to expand the international reach of their energy storage business. The past year also saw many mineral, energy, and power companies exploring new opportunities in energy storage.
2020 was the final year of China's 13th Five-year Plan. Over the past five years, a solid foundation has been laid for energy storage in both technologies and applications. The 14th Five-year Plan is an important new window for the development of the energy storage industry, in which energy storage will become a key supporting technology for renewable energy and China’s goals of peak carbon by 2030 and carbon neutralization by 2060. As we face this new period, the question remains as to how energy storage colleagues will seize new opportunities, face changing markets, promote commercial development of energy storage, and establish a leading position in the international market.
Author: Shi Yubo Executive Vice Chairman, China Energy Research Society; Former Deputy Director, National Energy Administration