Policy interpretation: Guidance comprehensively promote the development of energy storage under the ‘dual carbon’ goal

Driven by the national strategic goals of carbon peaking and carbon neutrality, energy storage, as an important technology and basic equipment supporting the new power systems, has become an inevitable trend for its large-scale development. Since April 21, 2021, the National Development and Reform Commission and the National Energy Administration have issued the ‘Guidance on Accelerating the Development of New Energy Storage (Draft for Solicitation of Comments)’(referred to as the ‘Guidance’), which has given rise to the energy storage industry and even the energy industry. The industry has given a high degree of recognition to the release of the Guidance and positive feedback. On July 23, the National Development and Reform Commission and the National Energy Administration formally issued the "Guidance" after fully soliciting suggestions from all walks of life.

China Energy Storage Alliance (CNESA) combines the research and understanding of industries and policies to briefly interpret and analyze the content of the guidelines, policies and industrial impacts:

Comparison of the ‘Guidance’ draft and official documents

Compared with the draft, the official document has not changed much, emphasizing strict adherence to the bottom line of energy storage safety, and integrating the advantages of the upstream and downstream of the industry chain through the method of "revealing the list and taking command" to promote the integrated development of industry, university, research and application, and concentrate efforts to tackle key problems in the large-scale development of the industry, promoting the diversified development of energy storage, and ensuring that energy storage becomes a strong support for the realization of the ‘dual carbon’ goal. In addition, in the improvement of the ‘new energy + energy storage’ project , adding a ‘sharing model’ has become one of the ways to implement new energy power generation projects for new energy storage, and it is clear that the ‘sharing model’ is to optimize the coordinated development of regional renewable energy and energy storage , also it is an effective way to promote the formation of a variety of energy storage business models.

The practical significance of the ‘Guidance’ to the development of the energy storage industry

1. Clarify the goal of 30GW of energy storage, and boost to achieve leapfrog development

According to the statistics of the database from China Energy Storage Alliance , the cumulative installed capacity of new electric energy storage (including electrochemical energy storage, compressed air, flywheel, super capacitor, etc.) that has been put into operation by the end of 2020 has reached 3.28GW, from 3.28GW at the end of 2020 to With 30GW in 2025, the scale of the new energy storage market will expand to 10 times the current level in the next five years, with an average annual compound growth rate of more than 55%. This total scale and growth rate, and the clarification of my country's new energy storage installed capacity targets will release positive policy signals for society and capital, guide social capital to flow into technology and industries, and boost the rapid arrival of the trillion-dollar energy storage market.

2. Emphasize planning guidance and deepen the layout of energy storage in various application fields

At present, energy storage has entered a stage of rapid development, and it is urgent for the country to coordinate all parties to issue a special plan for it. Through strengthening management and guidance, it can effectively standardize industry management, optimize industrial layout, improve the efficiency of energy storage systems, and avoid disorderly development of the industry.

In the ‘Guidance on New Energy Storage’, energy storage on the power side emphasizes the layout of system-friendly new energy power station projects, the planning and construction of large-scale clean energy bases for cross-regional transmission, and the exploration and utilization of existing plant sites and transmission and transformation facilities for decommissioned thermal power units, or wind and solar storage facilities. These tasks on the one hand meet the current demand for energy storage in the development of renewable energy, and at the same time, they are in line with the previously issued ‘Guidance on Promoting the Integration of Power Sources the Development of Multi-energy Complementarity’ and ‘Notice: Regarding the Development of Wind Power and Photovoltaic Power Generation in 2021’ . It can be said that the implementation is supported and the policies are guaranteed.

Grid side energy storage emphasizes the role of new energy storage on the flexible adjustment capability and safety and stability of the grid, improving the power supply capacity of the grid, emphasizing the emergency power supply guarantee capability of the grid, and delaying the demand for energy storage in the upgrading and transformation of power transmission and transformation. It can be said that the grid-side energy storage that has been suspended since 2019 has re-pressed the start button. At the same time, with the industry’s new understanding of grid-side energy storage and the entry of various social entities, we believe that under the guidance of policies, the grid-side energy storage Energy storage will be rejuvenated.

User side energy storage has always been the most viable application field of the energy storage industry. With the development of new infrastructure and new business formats, user-side energy storage has increasingly shown a development trend of ‘energy storage’ +. With the continuous development of the electricity market deepening, this field will be the main force in energy storage business model innovation, which will bring vitality and surprises to the development of the industry.

3. Improve the new energy storage price mechanism and promote the establishment of energy storage business models

In the "Guidance", for the first time, the establishment of a grid-side independent energy storage power station capacity price mechanism was proposed, and the study and exploration of the cost and benefit of grid alternative energy storage facilities into the recovery of transmission and distribution prices, improved the peak and valley price policy, and created greater development for the user-side energy storage space. Based on the ‘Opinions on Further Improving the Price Formation Mechanism for Pumped Storage’ and the ‘Plan on Deepening the Reform of the Price Mechanism during the 14th Five-Year’ period, the country clearly proposes the establishment of a new type of energy storage price mechanism and a new type of storage price mechanism. Energy should be formed in the form of market competition, and energy storage facilities that play the role of grid substitution will be recovered through transmission and distribution prices. New energy storage can participate in the medium and long-term, spot and ancillary service markets to obtain benefits.

4. Aiming at the points of new allocation for energy storage, and specifying the focus of subsequent policies

At present, more than 20 provinces and cities in China have issued policies for the deployment of new energy storage. After energy storage is configured, how to dispatch and operate energy storage, how to participate in the market, and how to channel costs have become the primary issues which plague new energy companies and investors. In response to the current issues in the allocation of energy storage in various provinces, the document also further clarifies the coordinated development of energy storage and new energy, through competitive configuration, project approval (filing), grid connection timing, system scheduling and operation arrangements, and ensuring utilization hours , power auxiliary service compensation and assessment, etc. are given appropriate inclination, which points out the direction for the rationalization of new energy allocation of energy storage to achieve rational cost relief. In the transitional stage of the power market reform, it is possible to further explore the feasibility of allocation of energy storage in increasing the weight of ‘green power transactions’.

Based on the above analysis, as the first comprehensive policy document for the energy storage industry during the ‘14th Five-Year Plan’ period, the ‘Guidance’ provided reassurance for the development of the industry. In the context of the ‘dual-carbon’  goal and energy transition, the energy storage industry’s leapfrog development is the general trend and demand. The follow-up actions will inevitably introduce a series of policies for the development of energy storage to eliminate industrial development. Faced with ‘obstacles’ one by one. At the local level, with the improvement of policies and market mechanisms, new business models will emerge. We firmly believe that China will become the world’s largest energy storage market. On this huge and diverse fertile soil, the energy storage technology from China will be fully developed and verified, and will lead the development of the global energy storage industry! After all the exploration and perseverance, China's energy storage industry will surely gain steam!

2020 Energy Storage Industry Summary: A New Stage in Large-scale Development

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

0.1 RMB per kWh: Qinghai Enacts First Renewable Energy & Energy Storage Subsidy

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

Energy Storage and Renewable Energy Co-development Trends and Application Models

In recent years, as installed capacities have expanded and technologies have advanced, the cost of renewable energy power generation has dropped significantly, gradually approaching that of fossil energy and in some cases even lower than that of fossil energy. The pairing of “renewable energy + energy storage” has gradually become the consensus for future renewable energy development.

In the past two years, many provinces, cities, and regions in China have issued ancillary services construction plans and operations regulations, such as updates to the grid regulations in northwest China, updates to grid regulations and ancillary services market regulations in northeast China, regulations for energy storage engaged in peak shaving in Shanxi, rules for third-party independent participation in the north China peak shaving ancillary services trial market, updates to grid regulations in southern China, and other regulatory updates. These rules have helped to promote the healthy and orderly development of the power ancillary service market, and have provided a platform for new market players and new technologies such as energy storage to participate in the power market. For example, Zhejiang has carried out transactions for ancillary services such as frequency regulation, voltage regulation, backup, and black start, explored a joint clearing model for ancillary services and the spot market, and optimized the marginal clearing of electricity and ancillary services.

In addition, over the past two years, more than ten provinces including Inner Mongolia, Hubei, and Henan have issued policies requiring new renewable energy projects to be equipped with 5%-20% energy storage systems to promote renewable energy + energy storage applications.

Renewable Energy + Energy Storage Application Business Models

Centralized wind/solar stations + storage application models typically engage in services such as peak shaving, capacity firming, grid support, and output smoothing. Current profit points include load shifting during limited power periods, priority dispatching, and reduction of thermal power spinning reserves. Potential profit points include revenue from solar-storage and wind-storage and from participation in frequency regulation and ancillary services. The advantages of these application models are that they can limit the risk of generators being penalized. However, the true value of lowering such risks is difficult to assess, and there is no compensation mechanism to measure the value created by energy storage. Economical projects are also difficult to guarantee. Additional challenges include a lack of rational investment undertaken by the power generation side, a lack of supporting policies, a lack of a market mechanism, and a lack of large-scale energy storage planning.

Xinjiang is one example. On May 26, 2020, the Xinjiang Development and Reform Commission issued the "Interim Regulations for Generation-side Energy Storage Management in the Xinjiang Power Grid," encouraging power generation companies, power sales companies, power consumers, and independent ancillary services providers to invest in the construction of energy storage facilities with a required charging power of 5000kw or more and continuous charging time of 2 hours or more. The interim regulations provide four basic principles or application models, namely, market bidding, inter-plant transactions, bilateral negotiations, and grid dispatch. Of these, the main operations rules which are used include market bidding by wind farms/solar PV as well as bilateral negotiations between power generation companies and energy storage. The regulations help to encourage the power grid to increase basic dispatching time by 100 hours annually.

These wind-storage and solar-storage stations enjoy two kinds of profit models. The first is the self-use of energy storage capacity at the wind or solar station where it is located, dispatching energy as if it were generated by the plant, and generating revenue according to the generator’s contracted price. The other type of profit model is generated when the energy storage facility enters a charging state according to the instruction of the power dispatch agency, and receiving compensation for the amount of power charged. Standard compensation for this model is 0.55 yuan/kWh.

In addition to the front-of-meter energy storage in Xinjiang, the industry has also taken note of the “shared energy storage” commercial operations model in Qinghai. This model allows renewable energy plants and energy storage enterprises to sign a transaction contract specifying time, quantity, and price of energy being traded, and cooperating with the power grid to allow dispatch of energy storage.

Rather than limiting energy storage applications to the generators at which they are co-located, a more flexible business model can be created which forms independent energy storage system operators. These specialized companies would engage in the selection, financing, design, construction, operation, and maintenance of energy storage power stations. In actual operation, energy storage operators would need to cooperate with power generation enterprises to form "virtual" connections, that is, energy storage systems would not need to be physically connected with generators, but could form a unified body of power generation enterprises at the grid-side so that generators and energy storage systems can provide high quality ancillary services. A win-win for energy storage operators and power generation enterprises can be achieved by sharing the compensation received for providing ancillary services.

Three models can be derived from this: In the first, a single power generation company and a single energy storage operator cooperate with a clear relationship and direct cost settlement. In the second model, one power generation company cooperates with multiple energy storage operators. In this model, power generation companies can make full use of the advantages of energy storage technology, and even use the variety of energy storage resources at their disposal to meet the demands of different ancillary services, thereby maximizing the quality of ancillary services provided. However, this type of cooperation model is technically more complicated, creating challenges for the operation and management of power generation. In the third model, multiple power generation companies cooperate with one energy storage operation company. The foundation of this business model is that the energy storage operator has built a larger capacity and module-divided energy storage station, and the energy storage operator may choose its best quality partner. However, this type of model presents a certain degree of complexity in business operations.

New Energy Storage Policies and Trends in China

Energy storage development in China is seeing new trends emerge.

First, energy storage technology is a multi-disciplinary, multi-scale integration of science and technology. Chemical and physical energy storage technologies involve electric power, machinery, control and other aspects. Energy storage materials, units, systems and other components require multi-disciplinary cross-integration. This cross-integration will become a major trend as new technologies are developed and existing technologies improve.

Second, there are currently a variety of energy storage technologies, which may become centralized on a handful of mainstream technologies in the future. At the same time, new technologies will continue to emerge. Whichever energy storage technology will dominate the market will be a matter of the market “voting with its feet.”

Third, the price of energy storage is rapidly falling. Only under the precondition that both renewable energy and energy storage prices continue to fall can renewable energy + energy storage become an established business model.

In the future, energy storage and renewable energy will see integrated development. Renewable energy development in China will pass through three stages, namely, the subsidy support stage, the renewable energy parity stage, and the renewables + storage parity stage. Only when the renewables + storage price (parity) and performance (dispatchability) become comparable to fossil energy will the era of mainstream renewable energy truly arrive.

Energy storage itself will also pass through four stages of development: a technical verification stage, an applications demonstration stage, an initial commercialization stage, and a large-scale development stage. Energy storage in China still faces some major challenges, such as safety concerns, a lack of clarity on what entity should be responsible for energy storage management, a lack of a reasonable price mechanism that can properly compensate storage’s value, an incomplete support mechanism for participating in the energy market, and other challenges.

To meet these challenges, we must first clarify what entity will be responsible for ensuring the safety of energy storage systems, and what entity will be responsible for overall management of energy storage projects. Comprehensive safety evaluations of energy storage systems should be conducted, identifying safety hazards at each segment of the energy storage system, and determining proper management methods for minimizing such hazards. In addition, we must also make use of project experience and our knowledge of current market development to improve standards and regulations for energy storage, and raise the threshold of entry for energy storage products in the market.

Second, we must clarify the identity of energy storage as a market entity. This includes defining the procedures for establishing energy storage projects, including fire safety approval, environmental assessment, land approval, facility approval, civil air defense approval, and other procedures. Grid companies must also clarify the procedures for grid connection of energy storage across various storage applications.

Third, a reasonable price mechanism must be defined. The value of the public good brought by energy storage is far greater than its cost. But if only a single market entity is responsible for the cost of energy storage, benefits are likely to be less than the total cost of investment. Therefore, we must look at the cost and value of energy storage from an overall perspective, making decisions at the national level and based on the principle that the beneficiary should be the one to pay for services. These actions will help to establish a reasonable market-oriented price mechanism shared by generators, the grid, and consumers.

Facing the challenged of energy storage commercialization across many fields, we must continue to accelerate the power marketization process, use market-based means to solve challenges in energy storage system applications, and rationalize market rules to adapt to new technologies such as energy storage. The ancillary services market and demand-side management, particularly the long-term demand response mechanism, are still waiting to be fully established in order to increase the value of energy storage applications across various fields. In the initial stages of marketization, it is also necessary to provide financial assistance to energy storage to support the social benefit it brings. We have three primary suggestions for the development of energy storage:

At the current stage, we must be engaged in forward-thinking planning and research to avoid ineffective allocation of resources. We must make clear the threshold of entry for energy storage in the market to ensure only high-quality energy storage applications are developed. We must also implement policies for paired energy storage applications which will support co-development of storage with renewable energy generation.

In the short term, with the power market and price mechanism still unable to reflect the value of paired energy storage systems, we must promote pumped hydro storage polices and introduce transitional polices which will support renewable energy and energy storage co-development. We suggest that an energy storage quota mechanism should be explored, and the importance of “green power” should be emphasized. China's green certificate trading and renewable energy quota mechanism should be used as a reference.

Finally, in the medium and long term, the price of renewable energy power generation and the cost of energy storage must be paid by its beneficiaries. Price compensation is also necessary to promote the co-development of renewable energy and energy storage. We suggest the establishment of a long-term market-oriented mechanism and an energy storage price mechanism which considers the holistic perspective to properly assign the payment for “green value” to those which benefit most from it.

Author: Chen Haisheng, Chairman, China Energy Storage Alliance

2020 China Energy Storage Policy Review: Entering a New Stage of Development in the 14th Five-year Plan Period

Under the direction of the national “Guiding Opinions on Promoting Energy Storage Technology and Industry Development” policy, the development of energy storage in China over the past five years has entered the fast track. A number of different technology and application pilot demonstration projects have been launched, many key technical components have reached an advanced level of maturity, numerous key technical norms and standards have formed, and internationally competitive market players have entered the playing field. While it is true that the development of China's energy storage industry has moved from a technical verification stage to a new stage of early commercialization, the industry still faces many challenges which hinder development, and true "industrialization" has not yet materialized. As we enter the 14th Five-year Plan period, we must consider the needs of energy storage in the broader development of the national economy, increase the strategic position of energy storage in the adjustment of the energy structure, and make known the important role of energy storage in the social and economic development of China. While looking back on 2020, we also looking forward to the development of energy storage industrialization during the 14th Five-year Plan, as policy and market mechanisms become the key to promote the full commercialization and large-scale application of energy storage.

Build a solid foundation for the training of talents and increase the strategic importance of energy storage

In 2020, under the direction of the National Development and Reform Commission to promote energy storage and lay a solid foundation for industrial development, the Ministry of Education, the National Development and Reform Commission, and the Ministry of Finance jointly issued the “Action Plan for Energy Storage Technology Discipline Development (2020-2024),” proposing to create a number of undergraduate majors, secondary disciplines, and cross-disciplines specializing in energy storage technology over the next five years. Xi'an Jiaotong University, North China Electric Power University, and other colleges and universities have already added such energy storage disciplines. The “Suggestions on Accelerating the Reform and Development of Postgraduate Education in the New Era” also included the construction of an innovative platform for the integration of energy storage technology, industry, and education, and implements a special project for independent training of talents in core technical areas. The construction of a discipline system and the training of professionals through these policies will help to build a solid industrial foundation for energy storage.

Industry development guidance and pursuit of optimal energy prices

In July 2020, the National Energy Administration issued the “Notice on Organization and Application of Scientific and Technological Innovation (Energy Storage) Pilot Demonstration Projects.” The issuance marked the conclusion of a years-long solicitation of national energy storage demonstration projects with the shortlisting of eight large-scale energy storage projects in a range of applications. The demonstration projects will help to promote the introduction of new policies and market mechanisms through analysis and synthesis of successful experiences and current challenges relating to a diverse range of energy storage projects.

The National Development and Reform Commission and the National Energy Administration proposed a "two integrations" energy development strategy in the “Guiding Opinions on the Development of ‘Integrated Wind, Solar, Hydro and Thermal Storage’ and ‘Integrated Source, Network, and Load’ (Draft for Comment).” The proposal combines the advantages of different energy technologies with the rapid and flexible adjustment capabilities of energy storage. However, the pursuit of low energy costs through the "two integrations" strategy is not realistic in the short term. We must also consider the value and cost of the societal benefits of the green development which these projects bring. Promoting the construction of an intelligent, efficient, and green energy system requires the entire nation to accept and bear these comprehensive costs and set aside the single pursuit of only the absolute lowest energy costs.

Continued electricity market reforms create an open and fair environment

As electricity market reforms continue, market rules gradually tilt to new market players such as energy storage. The “Basic Rules of Medium-and Long-term Electric Power Trading” defines the identity of energy storage enterprises participating in market transactions. Jiangsu, Jiangxi, Shanxi, Qinghai, and other regions have released construction plans for electric power spot markets and proposed long-term development directions for ancillary services markets. Among these proposals, "establishing a market mechanism for ancillary service costs shared by users and power generators" has become the key for promoting the commercial application of energy storage in the future. The “Notice on the Signing of Medium-and Long-term Electric Power Contracts in 2021” proposes to promote medium-and long-term transactions with load curves on both the generator and user side. Because it is difficult to predict market supply and demand in the short term, it is still necessary to refer to the existing catalogue electricity price or guiding electricity price to determine the peak and off-peak price difference. Although China has carried out medium-and long-term trading for many years, and has also put forward the idea of transitioning to a new price model, there are still some regions where the price formation mechanism does not match the actual power supply and demand. The peak and off-peak price gap has also been reduced through medium-and long-term transactions, which also reflects the passivity of the market mechanism. In the future, the trend of widening the peak and off-peak price gap will continue according to power supply and demand. Behind-the-meter energy storage arbitrage business models will still have guaranteed value, though the ability of energy storage to participate in spot market bidding must also gradually improve.

Under the guidance of the “Work Plan for Improving the Power Ancillary Services Compensation (Market) Mechanism,” ancillary services markets have been constructed in multiple regions in recent years, and energy storage has also been commercialized in Guangdong, West Inner Mongolia, Shanxi, North China, and other regions. However, the high compensation brought by the provision of high-performance energy storage services also creates risks for market capital use, and the continued adjustment of policies has also impacted investment in energy storage projects. In 2019, adjustments were made to the compensation calculation in West Inner Mongolia and North China. In 2020, Guangdong also made an adjustment to its settlement process, while West Inner Mongolia once again adjusted its compensation calculation method. Shanxi, Qinghai, Hunan, and other regions have also made downward adjustments to the peak regulation compensation standards for energy storage participating in ancillary services. Policies have changed frequently in less than a year. This lack of a long-term market mechanism has become a prominent problem restricting the commercial development of energy storage.

Despite this, ancillary service market rules solve the basic identity problem of energy storage participating in the market. Energy storage receives a market subject status equal to that of power generation enterprises, power sales enterprises, and power users, and third parties are permitted to offer their services to the market. Independent energy storage providers in Fujian, Jiangsu, Shanxi and other regions are permitted to apply for power generation business licenses, and are permitted to participate in ancillary services provision.

Renewable energy + energy storage becomes a leading trend, but commercial development still faces difficulties

As large-scale renewable energy continues to expand, the pressure and responsibility to supply guaranteed power generation becomes more intense. In 2020, numerous local governments and power grid departments once again put forward a demand for renewable energy projects to be equipped with energy storage systems matching 5% to 20% of renewable energy generation capacity. Energy storage has also become a precondition for priority grid connection and priority consumption. However, under existing system costs and without a mechanism in place for assigning cost coverage responsibility, the development of integrated renewables and storage cannot be achieved overnight. Relying solely on the principle that "charge and discharge electricity prices and settlement shall be determined in accordance with relevant national regulations" cannot solve commercial development challenges, but instead shows that policy is oriented towards transferring responsibility. During the process of charge and discharge, energy storage switches identity from that of a user to that of a power generator. Peak-shaving compensation and feed-in charges cannot be paid repeatedly, while independent energy storage projects are also faced with the risk of double charges. In addition, policy must also gradually raise the threshold of entry for projects in the market to avoid the possibility of safety accidents inhibiting industry development.

It is not necessary to use market mechanisms and policy compensation to give specific support to energy storage. Instead, energy storage should be allowed a fair and open market in which it is allowed to compete with other market entities. A sound market environment is the core for comprehensive commercial development of energy storage.

Electricity prices are optimized and adjusted, and behind-the-meter energy storage prices becomes more reasonable

A new round of transmission and distribution electricity price and retail electricity price adjustments resulted in numerous regions reducing consumer electricity prices, adjusting peak and off-peak price differences, and adjusting the peak and off-peak price implementation period. With the large-scale deployment of renewable energy, the original mode of determining peak and off-peak electricity prices according to consumer electricity consumption habits has changed, and net load has become the basis for peak and off-peak price adjustment. In 2020, Jiangsu, Zhejiang and other regions further reduced the off-peak electricity price and widened the peak and off-peak price gap. Regions such as Hubei not only widened the peak and off-peak period, but also added a super peak electricity price and adjusted their peak and off-peak price differences. Shandong, Gansu and other regions implemented complete price adjustments for all TOU periods. While the widening of the peak and off-peak price difference is beneficial to behind-the-meter energy storage applications, energy storage charge and discharge strategies must also be adjusted to adapt to the changes to the peak and off-peak period.

At the same time, Beijing’s Chaoyang District continued to provide 20% initial investment subsidies for energy storage projects after energy storage was incorporated into the special funds for energy conservation and emission reduction in 2019. After Hefei, Suzhou, and other regions granted subsidies for distributed solar+storage and energy storage systems, Xi'an and Shaanxi begin providing 1 RMB/kWh charging subsidies for energy storage in solar+storage systems. Energy storage technologies are also needed in new applications such as 5G base stations, data centers, and EV support facilities. Consumers in these industries will rely on energy storage to help solve distribution capacity problems, provide emergency power backup, and reduce electricity expenditures. Related energy storage applications can also receive regional subsidies in Guangdong, Kunming, Hefei and other regions. With the increasingly widespread use of EVs, further integration of solar+storage+charging can also be expected.

Demand response and consumer peak shaving overlap, and adjustment resources require increased efficiency

The peak-shaving market is expected to connect with the spot market mechanism, using market-oriented price mechanisms to mobilize resources to respond to the demands of the power system. However, to mobilize behind-the-meter adjustment resources, power operations regulators in Shanghai, Jiangsu, Guangdong, Zhejiang, Shandong, and Henan launched the construction of a demand response mechanism based on the 2013 demand response trial program. Compensation comes from surplus capital pools such as super peak electricity prices and renewable energy transactions. In addition, energy regulatory departments in North China, Jiangsu, and Shanxi opened the door for third-party entities and consumer resources to participate in peak-shaving ancillary services, though peak-shaving compensation in some regions is still provided by power generation enterprises. In areas in which ancillary services costs are not transmitted to the consumer, there are policy change risks for non-generation entities which earn profits from ancillary services.

Due to the high overlap between demand response execution time and peak and off-peak electricity prices, there is still room for flexible design of the baseline, so the profits for energy storage participating in demand response are relatively limited. The existing peak shaving and demand response mechanism design provides energy storage charging and discharging compensation which can increase energy storage revenue. However, under the existing peak and off-peak price mechanism, independent energy storage charging and discharging for peak shaving is already in place. If peak shaving and demand response implementation are consistent with the implementation of peak and off-peak price periods, there will be some overlap in compensation. In addition, although peak shaving and demand response are directed by different departments, the response mechanism is basically the same, and there is still the problem of compensation payments duplicating. In some regions, peak shaving is frequently dispatched, with cumulative days equaling as much as half a year. A resource response that was originally a short-term emergency service has become a continuous demand. Rather than continue this practice, it would be better to flexibly change the peak and off-peak pricing period and prices, and allow users to cover the cost of energy storage. Therefore, it is necessary to integrate the process of spot market construction to effectively link consumer peak shaving, demand response, and market-based pricing mechanisms to avoid overlapping use of resources and invalid payment of funds. The baseline and response mechanism should be adjusted reasonably to support the energy storage technology as it provides services to the power system.

The power grid supports the development of energy storage and promotes its role in the energy system

In 2019, the national government made it clear that “costs unrelated to the power transmission and distribution business of grid companies,” including the cost of energy storage facilities, should not be included in transmission and distribution prices. China’s major grid companies followed by stating they would not carry out grid-side electrochemical storage investment, leasing, or contract energy management, nor would they construct new pumped hydro storage projects. Currently, due to the inability to match regulatory capabilities with the demand for grid investment in energy storage projects, it is reasonable to prohibit grid investment in energy storage projects under the principle of ensuring market fairness. However, this does not mean that the regulatory mechanism is not evolving. In 2020, the method by which the power grids promoted energy storage development changed. In the “Key Work Arrangements for Reform in 2020” and the “Opinions of State Grid Co., Ltd. on Comprehensively Deepening Reform and Striving for Breakthroughs,” the power grid expressed its intention to implement a new business plan for energy storage and cultivate new momentum for growth based on strategic emerging industries such as energy storage. The “Key Points for Professional Work on Smart Power Utilization in 2020" also suggested strengthening customer-side energy storage application research and gradually clarifying system access requirements. In addition, the “Energy Law of the People's Republic of China (draft for comment)” encouraged the development of smart grid and energy storage technology. The National Energy Administration's response to Recommendation No. 9178 of the Third Session of the Thirteenth National People's Congress stated that for some energy storage projects deployed to defer investment in new transmission lines and substation equipment, consideration will be given to include their construction and operations costs into T&D service costs. The response also suggested that continued research would seek to create an effective model for covering the costs of energy storage in order to support the orderly development of grid-side storage.

Implementing large-scale commercial development of energy storage in China will require significant effort from power grid enterprises to promote grid connection, dispatching, and trading mechanisms, and also share the responsibility of the regulatory authority for energy storage safety risks to ensure the high-quality application of energy storage.

How Can Energy Storage Overcome Obstacles to Participation in the Ancillary Services Market?

In November 2020, the Central China Energy Regulatory Bureau released the “Jiangxi Province Power Ancillary Services Market Operations Regulations (Trial)” (referred to as the “regulations” below). In comparison to the earlier draft release, the trial regulations have added content which encourages independent energy storage systems to participate in the peak shaving ancillary services market.

Since the National Energy Administration’s 2017 publication of the “Improving Power Ancillary Services Compensation (Market) Mechanism Workplan,” multiple regions have followed with market operations regulations for ancillary services, providing support for energy storage technology applications. Considering these developments, what is the current status of the ancillary services market in China? What challenges remain to be resolved?

Independent Energy Storage Has Advantages

Industry experts believe that although the release of the Jiangxi regulations provides clarification of energy storage’s identity, the compensation mechanism and subsidies for energy storage provided in the regulations are not enough to cover the investment costs for storage. Market regulations help clear obstacles related to energy storage’s identity, but do not provide simple price compensation.

“Independent energy storage stations are an emerging trend. When energy storage is tied to other systems, it must share its earnings with those other systems,” China Energy Storage Alliance senior policy research manager Wang Si told reporters.

Wang Si believes that independent energy storage possesses two advantages. First, companies which invest and operate independent energy storage systems may operate projects on their own, collecting earnings for themselves with a greater degree of flexibility. Second, independent energy storage systems are better able to aggregate, creating greater value through energy storage sharing. This changes the conventional business model of providing service for just one user, allowing an energy storage system to instead provide service for multiple generation companies, users, and even the entire power system. “Therefore, it is necessary to not only design such systems, but also allow them to participate in the ancillary services market. This will increase the overall effectiveness of the systems,” said Wang Si.

According to Wang Haohuai, director of the China Southern Grid Power Dispatch Center, “with energy storage’s identity in the market defined, operator autonomy is increased. Otherwise, operations and settlement are limited by the entity to which the storage system is tied to, which will affect enthusiasm for investment.” As Wang Haohuai also stated, energy storage follows market service regulations. Implementation of a pay-for-performance mechanism should also be guided by a top-to-bottom evaluation or market mechanism. “For example, once large-scale renewable energy penetrates the grid, exactly how much peak shaving and frequency regulation resources are needed, and how fast, accurate, and stable must they be? Only when operations, market, and settlement provisions have established relevant indicators will energy storage be able to achieve a sufficiently fast regulatory speed and earn a higher level of compensation.”

The Energy Storage Cost Mechanism Continues to Face Challenges

Energy storage has yet to reach a fully commercial stage, making marketization of ancillary services a challenge to commercial operations of energy storage.

According to Wang Si, the key to solving the problem of ancillary services commercialization lies in the power market. Current market regulations and related policies do not support market entry of energy storage. This is especially true of ancillary services market and spot market regulations, which cannot support the full participation of storage in the market, nor allow it to receive full benefits. “Following power market reforms, barriers to energy storage’s participation in the market were removed, and new doors were opened for energy storage to earn profits. We predict that energy storage costs will continue to decline, particularly since the large-scale effect of energy storage in the power system has yet to be reflected.”

Wang Si went on to state that energy storage’s costs should not be incorporated in power costs, “in the current renewable energy quota system, it is the consumers who are made to bear the duty of using green electricity, and the corresponding costs are reflected in financial products such as green certificates. In the future, power generators will gradually transmit the cost to the consumer side, and receive payment from the beneficiary. To support the development of renewable energy and energy storage, corresponding policy support is needed to generate economies of scale, further reduce costs, and enhance competitiveness."

According to Wang Haohuai, the power market system is currently under construction, and the commercial value assessment of energy storage is undergoing major policy changes, creating both risks and opportunities. For example, in addition to the challenges of the “pay-for-performance” mechanism, there are also issues such as the inability to transfer energy storage costs to the consumer, preventing the beneficiary from being the one who pays. “Combined energy storage and renewable energy costs are still high at the current stage. In order to promote green energy consumption, consumers must take on the costs of green energy development.”

Policy Changes Bring Investment Risks

Ancillary services include frequency regulation, peak shaving, operating reserves, voltage control, blackstart, and other services. Among these, peak shaving is a unique service in China. Peak shaving is the practice of short-term regulation of power to match output generation with changing load, balancing power and encouraging greater consumption of renewable power. “Whether peak shaving and spot markets will be integrated in the future or will function in parallel is a matter of discussion among experts,” said Wang Haohuai.

Electricity market rules have not yet formed a long-term mechanism. Marketization is still at a transitional stage, which puts projects with a long investment payback period at risk when regulatory changes occur. “Everyone invests in energy storage projects under the current regulatory system, so they also face greater risks from policy changes,” said Wang Si.

Wang Si pointed out that the release of ancillary services market operations regulations across many regions has given energy storage an opportunity to expand profit margins to a certain extent, but that the vast majority of policies and regulations cannot offer compensation which fully covers investment costs.

“We have not yet completely entered the spot market stage. It is necessary to provide value compensation to combined renewable energy and energy storage through ancillary services market policies. This is the reason why many regions have released ancillary services market operations regulations,” Wang Si said, “we hope to see ancillary services market regulations gradually become a long-term mechanism, embodying the basic principle of paying for results, paying for revenue, or paying for accidents, and supporting transaction, grid connection, and settlement stages. Such regulations will help to clear away obstacles to energy storage’s participation in the market.”

CNESA Global Energy Storage Market Analysis—2020.Q3 (Summary)

As of the end of September 2020, global operational energy storage project capacity (including physical, electrochemical, and molten salt thermal energy storage) totaled 186.1GW, a growth of 2.2% compared to Q3 of 2019. Of this global total, China’s operational energy storage project capacity comprised 33.1GW, a growth of 5.1% compared to Q3 of 2019.

Graph 1: global total operational energy storage project capacity (MW)

Graph 2: China’s total operational energy storage project capacity (MW)

Both in the international market and the Chinese market, pumped hydro storage continued to account for the largest proportion of energy storage capacity totals. Yet the share of pumped hydro has been on a steady decline, with international pumped hydro capacity decreasing 1.9% and Chinese pumped hydro capacity decreasing 3.4% compared to 2019 Q3. In contrast, electrochemical energy storage capacities continued their rising trend, with international capacities increasing by 1.7% and Chinese capacities increasing by 2.7% compared to 2019 Q3. Total global energy storage capacity reached 10,902.4MW, while China’s total energy storage capacity reached 2242.9MW, surpassing the 2GW mark for the first time.

In the first three quarters of 2020 (January – September), global newly operational electrochemical energy storage project capacity totaled 1,381.9MW, an increase of 42% compared to the same period in 2019. Of this global capacity, China launched 533.3MW of newly operational electrochemical storage, an increase of 157% compared to the same period in 2019. In a global comparison, China led the world in new energy storage capacity, comprising 38% of new growth. Among technologies, Li-ion batteries comprised 99% of new capacity both in the global and Chinese market. Among applications, grid-side energy storage was most prevalent globally, comprising over 1/3 of new capacity, while in China renewable energy generation-side projects were most prevalent, comprising 2/3 of new capacity.

About this Report

CNESA Research customers can access the full version of the CNESA Global Energy Storage Market Analysis – 2020.Q3 by visiting the ESResearch website.

The ES Research website launched in January 2018 to provide an online platform for CNESA research products and services.  Products and services include the Global Energy Storage Database, Energy Storage Industry Tracking, energy storage industry research reports, and research consultation services. To learn more, please visit www.esresearch.com.cn. For questions or comments, please contact the CNESA research department at the email or phone number below.

Phone: 010-65667068

Email: esresearch@cnesa.org

2020 Energy Storage West Forum Held in Xining - Exploring an Ancillary Services Market Development Path in Support of High Grid Penetration of Renewable Energy

On Sep 28, the China Energy Storage Alliance hosted the 2020 Energy Storage West Forum in Xining, Qinghai, with support from the China Energy Research Society Energy Storage Committee, British Embassy Beijing, and China Huaneng Group Renewable Energy Technologies Research Center.

China’s western region is one of the country’s important clean energy generation bases and a key component to the Belt and Road project. As the coordinated development of renewable energy and energy storage becomes a driving trend, the abundant renewable energy resources in the west and the promotion of energy storage technology applications will inevitably become important supporters for the rapid development of energy storage in China. In addition, as the coordinated development of renewable energy and energy storage becomes a driving trend, the ancillary services market mechanism (in its transitional stage) becomes an important policy guarantee for integrated renewable energy and energy storage applications.

This year’s forum focused on the theme “Exploring an Ancillary Services Market Development Path in Support of High Grid Penetration of Renewable Energy,” featuring discussions examining ways to integrate ancillary services and energy storage. The forum provided support for China Energy Storage Alliance’s current research on ancillary services market development for high renewable energy penetration in China, which is guided by the National Energy Administration and supported by the UK China Prosperity Fund Energy and Low Carbon Economy Programme. The forum also gathered industry colleagues devoted to the development of the western energy storage market together to explore ways to better create innovative energy storage applications in the west, and provide western regional governments with support to implement policies beneficial to energy storage. These discussions help contribute to the establishment of a system and mechanism for commercial applications of energy storage that meets the characteristics of the northwest region.

Opening addresses were delivered by leaders from the National Energy Administration, Qinghai Energy Administration, Haixizhou Energy Administration, the British Embassy Beijing, China Huaneng Group Renewable Energy Technologies Research Center, and the China Energy Storage Alliance. CNESA secretary general Liu Wei hosted the forum’s opening session. Liaoning Power Grid former lead engineer Wang Zhiming served as host for the keynote sessions.

The opening ceremony began with remarks from Lei Xiang, researcher at the Department of Science and Technology Equipment, National Energy Administration. Mr. Lei stated that energy storage development has now entered the beginning stages of commercialization. The importance of energy storage to the energy system transition has begun to become apparent, but technological, economic, and safety barriers, as well as the lack of a mature market mechanism, are still major challenges. There are five major areas which require improvement: first, strengthening of overall planning to create a mechanism which increases clean energy generation and consumption that is supported by energy storage. Second, strengthening of power market mechanisms, creating a positive development environment for commercial operations of energy storage. Third, optimizing dispatch operations mechanisms to promote the paired operations of energy storage and clean energy. Fourth, creating a technical standards system which will support sustainable industry development. Fifth, supporting the development of pilot projects in key regions to find new models for the future of energy storage.

Zhou Wu, vice director of the Qinghai Energy Administration, said that Qinghai has been exploring the use of 100% clean energy for many years, in the past achieving world records by running on 100% renewable energy for separate periods of seven, nine, fifteen, thirty, and 100 days. To ensure a long-term stable supply of large-scale renewable energy, an ancillary services market powered by energy storage is indispensable. Mr. Zhou stated that the Qinghai Energy Administration would continue to promote the development of the Qinghai energy storage market.

Ang Zhi, director of the Qinghai Haixizhou Energy Administration, stated that Haixizhou renewable energy capacity, both under construction and in operation, totaled 12.99 million kilowatts. Haixizhou is currently planning the implementation of a variety of energy storage projects, and has already reached 125,600 kilowatts of installed energy storage capacity. Haixizhou has achieved a great deal of development potential in the green energy sector, and possesses the basic conditions needed to carry out national plans for “green energy + energy storage.” The prospects for development and application of energy storage technologies are broad. Pumped hydro storage, electrochemical storage, hydrogen storage, and compressed air energy storage technologies all show potential for application in Haixizhou.

Conor Gask, head of renewables and power sector at the British Embassy Beijing, joined the forum through prerecorded viedo. Mr. Gask stated that both China and the UK are world leaders in clean energy technologies, and that cooperation and information exchange between the two countries is important to achieving the rapid deployment of clean energy technologies. Through the support of the UK government’s China Prosperity Fund Energy and Low Carbon Economy Programme, CNESA is currently developing a national roadmap for ancillary services market development. This roadmap will support greater flexibility in the grid as well as greater penetration of renewables. Mr. Gask expressed hope that the project would contribute to China’s carbon reduction goals, and would encourage greater collaboration between China and the UK in energy storage, ancillary services market design, and broader energy system reforms.

Ren Libing, secretary of discipline inspection at the China Huaneng Group Renewable Energy Technologies Research Center, stated that energy storage is an effective means for promoting the energy revolution, providing flexible peak shaving services, tackling curtailment issues, and increasing grid safety. The Huaneng Renewable Energy Technologies Research Center has been involved in energy storage research for more than 10 years, and currently has more than 300MWh of energy storage capacity both under construction and operational. The research center’s current focus is on the theme “New Strategies for Energy Safety,” promoting the use of innovative development in clean energy sources and working to contribute to a sustainable and efficient energy storage industry.

Yu Zhenhua, vice chairman of the China Energy Storage Alliance, stated that western China features excellent renewable energy resources, and has been the setting for many innovative energy storage models in recent years. The region is well-suited for exploring renewable energy and energy storage paired development models. There is no doubt that renewable energy capacity development goals are beneficial to energy storage, yet energy storage still faces many challenges such as the lack of a clear identity, a lack of market diversity, and lack of a long-term mechanism for sustainability. These challenges must all be confronted and overcome. Chairman Yu also said that top-level energy development plans are still based on past experiences and understanding, while the current fast-paced development of energy storage signifies that future 10-year and 30-year energy planning goals and energy storage structure goals may require adjustment.

Li Hong, professor at the Chinese Academy of Sciences Institute of Physics, stated that China possesses strong determination to develop renewable energy, smart grids, and an Internet of Energy. Development of energy storage is strategically important to help optimize China’s energy structure and increase energy safety. The “Fourteenth Five-year Plan” hopes to increase the safety, lifespan, power rating, and energy efficiency of energy storage technologies, as well as improve response times and bring costs to below .2 RMB per kilowatt hour. As development continues, those companies which possess the greatest technological competitiveness, the most practical experience, and the strongest ability to integrate resources throughout the entire life cycle and the entire industry chain will eventually become the biggest winners.

Wang Jianxue, professor at Xi’an Jiaotong University, stated his belief that ancillary services are both technically complex and display rudimentary market coupling, making them prone to speculation. Whether ancillary services costs are reasonable and whether operations are stable are some of the key indicators of market-oriented reform. Prof. Wang stated that ancillary services costs should be apportioned to the user. For example, users which produce high levels of pollution and therefore require a greater amount of ancillary service resources than other users should be required to participate in the ancillary services apportionment mechanism.

Liu Mingyi, energy storage project development director at the China Huaneng Group Renewable Energy Technologies Research Center, stated that in October 2019, Huaneng Group positioned energy storage as a key area of focus. Core goals include large capacities, low costs, long lifespans, high efficiency, and increased safety. Huaneng has currently created a billion-renminbi energy storage market, and in the future the group hopes to create a market in the hundreds of billions.

Liu Mingyi and Professor Zheng Hua of North China Electric Power University were the hosts of the roundtable discussions “Exploring Development Path and Models for a Qinghai Ancillary Services Market Supporting High Renewable Penetration” and “Exploring A National Ancillary Services Market Roadmap and Mechanism Design.” Representatives from North China Electric Power University, Luneng Group, Qinghai Guangheng New Energy Co., Shanghai Electric Power Design Institute, Qinghai NEGO & Beijing NEGO Automation Technology, Zhiguang, State Grid Liaoning Dispatch Center, State Grid Ningxia Dispatch Center Control Office, Huadian Shanxi Energy Co., State Grid Jiangsu Electric Power Co. Planning and Development Research Center, and CLOU engaged in discussions on models and pathways for developing ancillary markets which support high penetration of renewables.

Additional presentations were delivered by energy storage companies and stakeholders such as Kelong, Soaring, SVOLT, Sungrow, Chungway, the Inner Mongolia Autonomous Region Electrical Engineering Society, BYD Auto Industry, and State Grid Jilin Dispatch Center. These presenters shared experiences on practical development and deployment of energy storage technologies for ancillary services applications, as well as  methods for developing a national ancillary services roadmap in support of energy storage.

CNESA Global Energy Storage Market Analysis—2020.Q2 (Summary)

1. Market Size

As of the end of June 2020, global operational energy storage project capacity (including physical, electrochemical, and molten salt thermal energy storage) totaled 185.3GW, a growth of 1.9% compared to Q2 of 2019. Of this global capacity, China’s operational energy storage project capacity totaled 32.7GW, a growth of 4.1% compared to Q2 of 2019.

Global operational electrochemical energy storage project capacity totaled 10,112.3MW, surpassing a major milestone of 10GW, an increase of 36.1% compared to Q2 of 2019. Of this capacity, China’s operational electrochemical energy storage capacity totaled 1,831.0MW, an increase of 53.9% compared to Q2 of 2019. Both in the global and Chinese markets, electrochemical energy storage capacities showed growth compared to their respective Q2 period in 2019, at 1.4% and 1.8%, respectively.

Graph 1: global total operational energy storage project capacity (MW)

Graph 2: China’s total operational energy storage project capacity (MW)

2. Market Developments

In the first half of 2020, the influence of the COVID-19 pandemic caused global delays in the energy storage project development process, including project approval, procurement, equipment shipping, and construction. These challenges caused a decline in new operational project capacity compared to the same period in 2019, with newly operational capacity totaling 591.8MW, a 26.2% decrease in growth rate. Apart from energy storage project development, financing of energy storage projects (including venture capital, private equity, and other investments) also suffered from the pandemic. Investments in the first half of 2019 totaled 1.9 billion USD, dropping to 716 million USD during the same period in 2020.

Much like the global market, the Chinese energy storage market also suffered from the effects of the COVID-19 outbreak. These effects were primarily felt during the first quarter. As the epidemic gradually became under control in the second quarter, factories began returning to work, and energy storage projects slowly returned to construction. Such projects included the Fujian Jinjiang 100 MWh Li-ion battery energy storage station, a northwest China centralized solar-plus-storage station, a Guangdong AGC frequency regulation energy storage project paired with a thermal power plant, and other projects which completed construction and began operation. These projects helped China’s new operational energy storage capacity to achieve a moderately higher capacity growth compared to the same period in 2019, at 3.8%, or 121.4MW.

Without Effective Policies, How Can “Renewables + Storage” Overcome Development Obstacles?

The development of renewable energy is unquestionably a critical factor to the transformation of China’s energy structure towards a safe, low-carbon, and high efficiency modern energy system. As renewable energy moves towards greater large-scale development and deployment, it provides new opportunities for energy storage. In the future, energy storage and renewable energy generation will develop in tandem. Energy storage will soon become a prerequisite for large-scale renewable generation, a trend that will likely become mainstream in China as well as many other countries. The high-scale penetration of renewables in power grids will require continued integration of energy storage, while energy storage itself will prove its value through smoothing and stabilization of the power system.

With a Market Mechanism Still Absent, Energy Storage is Not Yet Ready to Support Large-scale Renewable Development

The pairing of energy storage with renewable generation cannot occur without thorough exploration of its economics, and the question of who should pay for energy storage when it is paired with renewable generation is of critical importance. In the current system in which a cost price transmission mechanism is still lacking, any current mechanism must be seen as part of an awkward yet unavoidable transmission period. Even more awkward is that while energy storage is the key to solving limitations on large-scale renewable generation expansion, many still do not see the point of constructing energy storage. Part of the issue is the debate over how much renewable energy can be curtailed. Without curtailment, there is no application for energy storage. Therefore, the acceptance of a certain amount of curtailment is a beneficial choice which can not only support the development of renewable generation at a large scale, but also support the pairing of energy storage applications with renewables.

In 2017, Qinghai province began requiring wind energy stations to install energy storage equivalent to 10% of station capacity. While energy storage providers were delighted, many others in the energy industry were left scratching their heads at the decision. With energy storage entering a new stage, some believed that it was still too early to require renewable generators to foot the bill for energy storage investment. In addition, without a clearly defined goal, energy storage could not be seen as the only possible solution. Yet even a switch from compulsory to noncompulsory deployment of storage has not affected the interest of renewable energy generators in exploring energy storage, with Qinghai remaining a key region for energy storage applications paired with centralized renewable generation. The root cause for the policy is that the value acquisition problem for new energy storage investment has not been solved. The relevant policy terms and market mechanism do not match, but the direction and ultimate goal of the policy have not deviated, and it has brought greater recognition of energy storage system applications to this field.

In 2019 and onward, policies similar to the above “10% mandate” have been released or been the subject of research. Yet few people have come out to criticize such policies, one reason being that these policies have not required completely mandatory deployment of storage for renewable generation, an approach which has inspired enthusiasm among energy storage investors and renewable energy station owners. Another reason is that these policies often carry some policy support for projects, including guaranteed increases in generation, supplementary peak shaving and other ancillary services, and guaranteed grid dispatch. With grid-side and behind-the-meter storage investments and applications declining, energy storage paired with centralized renewables will become a driving force for growth of new energy storage applications. Even so, integration of renewables and storage still carries many challenges:

• Current curtailment issues, which are the primary focus of energy storage, may not be a problem in the future, meaning that energy storage may not be guaranteed profit in the long term.

• It is difficult to provide a guaranteed amount of renewable energy dispatch, creating uncertainty in short-term profits.

• Ancillary services compensation lacks a long-term mechanism, and both “handshake promises” and policy guarantees are uncertain.

• Models requiring combined energy storage and renewables are still reliant on government subsidies, while project operations are affected by policy changes during the investment return period and fund recovery delays.

On the one hand, energy storage investors want more explicit points of policy support, going so far as to make unreasonable demands that push policy makers to provide explicit commitments. On the other hand, policy makers want to release policies which can be implemented quickly, but it is difficult for all parties to participate. While it is easy to encourage the deployment of storage, long-term management is a different matter, and such management challenges will need to be solved through the future energy market. It should be unanimously agreed that no market mechanism needs to be tilted solely for energy storage. Policies and market rules can solve the problem of identity for energy storage, and help solve operational difficulties for new technologies participating in energy storage applications. Only when the specific demand for energy storage is reflected under a fair and open market mechanism can its application value truly emerge.

At present, energy storage can solve the near-term problem of consumption of renewable energy. In the end, energy storage must follow the principle of “who benefits, who pays.” The main entities which pay for the large-scale development and utilization of renewable energy are not just renewable energy developers themselves. As the beneficiary of “green development,” all of society has responsibility in bearing the costs for renewable energy. When it comes to energy storage, electricity consumers and renewable energy companies which enjoy the smoothing and stabilization services provided by energy storage should be the ones to bear the costs. Only in a market with a basic economic logic can a long-term effective mechanism for energy storage paired with renewables be constructed. Additionally, in order to maintain safe and stable operation of a future grid with high penetration of renewables, the deployment of energy storage to counter intermittency and unpredictability should be one of the basic duties of generation companies. In the future, energy storage will not exist as simply a special tool for solving consumption problems that come with the expansion of large-scale renewable energy, but will be an essential service necessary to solve the operational risks that will exist in a new energy structure.

Awkward Setbacks to Energy Storage Development

The current simplistic manner in which energy storage is paired with renewables is one which creates setbacks for the development of energy storage technology applications. Characteristics of this current structure include:

• Energy storage may serve as a precondition to give priority to the construction of renewable energy projects, but allocation ratio and capacity requirements are not properly evaluated. Whether existing supporting projects can meet the actual needs of the power system and whether the energy storage projects can be fully utilized remains to be verified.

• Policies which support the development of combined energy storage and renewables are still lacking. Current policies in support of frequency regulation are unable to support the recovery of system investments, and maintain an interesting behind-the-scenes “dispatch logic” (namely, verbal guarantees of charge and discharge times and dispatch strategies). Therefore, the value of energy storage in improving the operation and regulation capability of the power system cannot be realized.

• The current practice of low-price bidding does not have guiding significance and does not represent progress in industry or technologies. Centralized renewables have become the only energy storage application sector which does not have any threshold requirements to entry. A summary of China’s energy storage development at the end of 2020 is likely to reveal a false sense of prosperity due to incremental new growth. Continued development in such a manner will cause energy storage systems to become completely unusable and unnecessary.

• Most seriously, the series of energy storage system accidents in South Korea and other regions provides a wealth of learning experience and has highlighted the importance of energy storage system safety. Issues must be handled preemptively, otherwise the industry will fall into stagnation. Without a proper regulatory body, energy storage in some regions has already been “orphaned,” left to develop independently. With this lack of requirements for energy storage system construction and operations, it can be predicted that large-scale expansion of energy storage will inevitably bring new safety risks.

A multi-stage release of effective supporting policies is imperative. The critical issue to the paired application of energy storage with renewables is still the question of “who foots the bill?” Although we now have a relatively clear picture of what an effective short-to-medium term mechanism should look like, a substantive policy has yet to materialize. In order to lower the risk of liability for electricity charging, energy storage has already become a special technology for balance between the government, grid, and generation companies.

First, we must engage in forward-thinking research in our planning, to avoid misuses of resources. Currently, many areas require the deployment of a certain proportion and duration of energy storage systems, but basic analysis of the energy storage requirements for a power system featuring a high proportion of renewable energy reveal that the allocation ratio and energy storage duration requirements are unreasonably designed. It is also necessary to provide clear guidance to each region to measure the energy storage demand under different renewable energy development situations, so as to ensure that the additional energy storage system will be fully utilized.

Second, we must set clear entry requirements for energy storage to ensure the quality of energy storage applications. Many regions have released policies directed at the deployment of storage with renewables, but have not provided specific standards for energy storage systems. Without such standards, there is a risk of deploying low-quality energy storage systems in order to prioritize construction and grid connection. Technological thresholds need to be established before a project is launched to ensure safe and reliable operations of energy storage applications.

Third, we must launch policies which support paired renewable and storage applications to support the development of a friendly renewable energy development model. By viewing renewable energy stations which support energy storage technology as “friendly” renewable energy stations, appropriate support can be given to supporting projects to increase power generation and reduce the risk of curtailment. It is also necessary to clarify the identity of the energy storage project and its participation in the power market as soon as possible, so that dispatched energy storage systems participating in peak shaving and ancillary services may receive appropriate compensation.

In the short term, with a current power market and price mechanism unable to reflect the value of energy storage to renewable energy, it is necessary to release transitional policies which will help support development of combined usages of renewable energy and energy storage, that is, to study the energy storage quota mechanism and improve the weight of “green power.” Combining green certificate transactions and renewable energy quota mechanisms, power generation companies, grid companies, and power users which deploy energy storage can increase the importance of green certificates, and allow green power certifications to be transacted. Market entities can also freely invest and construct or rent energy storage systems to earn their quotas, or purchase such quotas in the market, creating a pairing of renewable energy and energy storage under a new transaction mechanism.

Over the long term, generation prices for renewable energy and costs for deploying storage should be covered by the beneficiaries and customers. In the current situation in which kilowatt prices for renewable energy are higher than traditional generators, value compensation is still required to promote the paired development of renewables and storage. Therefore, a long-term mechanism must be established which can guide the cost reduction of green value. At present, the cost of solar storage and wind storage in some global regions can compete with traditional thermal generation. We must continue to promote renewable energy grid parity, reducing the dependence on renewable energy financial subsidies. We must also promote comprehensive marketization, allowing power prices to reflect the actual cost of energy provision. We must also work to develop a widespread awareness of the social responsibility for green development, including the responsibility of the cost of green energy development, helping to transition from a subsidized system to one where price reflects value. Yet with current progress in renewable energy development being inconsistent with price reforms, a price compensation mechanism is still necessary to promote renewable energy and energy storage development, and stimulate both industries to lower costs while increasing quality.

The pairing of renewable energy with storage is a trend that is not going to reverse, and we must take a forward-looking approach to resolving the technological and commercial obstacles facing energy storage as soon as possible. Although energy storage has yet to take on an irreplaceable role in the power system, its important value in promoting the large-scale development of renewable energy storage in China cannot be ignored.

Author: Wang Si
Translation: George Dudley

The National Development and Reform Commission (NDRC) Release Plans for 2020 Summer Energy Peaking, Seeks Increased Reforms of Energy Storage and Peak Shaving Mechanism

On July 9th, the National Development and Reform Commission (NDRC) held a national teleconference to discuss the deployment of energy for the 2020 summer peak period. The meeting undertook a comprehensive assessment and analysis of the current supply and demand situation of energy during summer peaking, focused on prominent challenges related to "reform, increased energy storage, and security,” and directed relevant departments to do their best to guarantee energy supply for the summer peak. Lian Weiliang, deputy director of the National Development and Reform Commission, attended the meeting and provided a speech. Liu Baohua, deputy director of the National Energy Administration, spoke on work requirements. The meeting was presided over by Zhao Chenxin, deputy secretary general of the National Development and Reform Commission. Representatives from the State Grid Corporation of China (SGCC) and deputy secretary generals from relevant provincial people's government liaison offices also made speeches addressing the topic of discussion.

Meeting participants recognized that the summer peak energy supply faces particular challenges this year due to the impact of factors such as changes in power demand due to the COVID-19 epidemic, a particularly strong rainy season leading to high levels of flooding, and significant fluctuations in international energy prices.

The meeting requested that all parties be attentive to the new situation and trends facing this summer’s peak energy supply, and focus on reform, security, and increased energy storage so as to ensure a stable energy supply.

The meeting emphasized three areas of focus for reform to strengthen the energy supply: electric power, natural gas, and coal.

To strengthen the electric power supply, it is first necessary to increase power trading reforms. Steps include promotion of mid- to long-term power contracts, acceleration of the trial operation and settlement of power spot transactions, promotion of peak and off-peak time-sharing transactions in a market-oriented manner, increasing the number of declared price segments in the spot market, and encouraging more ancillary services to be included in power trading.

Second is further reform of the electricity generation program. A plan must be studied and formulated which can connect priority power generation and priority purchase plans with market-oriented transactions, and pilot projects must be gradually developed in different provinces to promote orderly liberalization of the generation side.

Third is further reform of the incremental power distribution business. Extended services should be provided to users, new operations models of incremental power distribution enterprises explored, dispatch rules clarified, and orderly and safely operations ensured.

Fourth is further reform of energy storage and peak shaving mechanisms. Grid-side, generation-side, and behind-the-meter energy storage shared responsibility mechanisms must be clarified, pilot projects developed which combine power market reforms, and the cost of energy storage and peak shaving recovered through flexible marketized mechanism.

Fifth is further reform of clean energy utilization. A system of guaranteed consumption must be implemented, and improvements made to the consumption plan for projects both within and outside planning so as to guide the orderly development of clean energy.

To strengthen the supply of coal, the meeting emphasized it is first necessary to increase reform of the mid- to long-term coal contract system, increase the number of contracts signed, and make full use of credit means to strengthen contract performance supervision.

Second, reforms must be made to the coal reserve system. The coal reserve responsibilities should be combined with coal production, consumption, and imports, and strong effort made to increase coal reserve capacity.

Third, reform of the coal trading system is needed to effectively leverage the role of the National Coal Trading Center and promote the formation of a unified and standardized national coal trading market.

Fourth, it is necessary to strengthen coordinated supply guarantees in key regions, promote the establishment of a coordinated supply guarantee mechanism between major coal-producing provinces and major consumption regions, and form a long-term strategic cooperation relationship that guarantees supply and price stability across regions.

To guarantee the supply of natural gas, the meeting emphasized that first, reform of the natural gas pipeline network system must be strengthened. According to the "X+1+X" reform plan and goals, the supply of upstream resources from multiple sources and channels should be strengthened, and the formation of a "national network" accelerated, creating a pattern of full competition in the downstream sales market.

Second, natural gas contracting must be further reformed. Local governments and relevant enterprises must be required to complete yearly and heating season contract signings in a speedy manner. Upstream gas supply enterprises should guarantee the gas volume of all local residents according to the benchmark prices, and fully guarantee the supply of natural gas to residents who have engaged in "coal-to-gas" projects.

Third, the construction of gas storage facilities must be accelerated. Local governments and relevant enterprises should attach greater importance to such construction, strengthen overall planning and layout, accelerate the construction of gas storage facilities, and ensure the completion of expected targets and tasks.

In addition to discussions on electric power, natural gas, and coal, meeting participants also made arrangements for safe production and risk screening during the summer energy peak.

Heads of relevant departments and bureaus of the National Development and Reform Commission and the National Energy Administration, as well as leaders of relevant central enterprises, were in attendance at the main meeting. Deputy secretary generals of the relevant provincial (district or municipal) people's governments, and representatives from the regional Development and Reform Commission, Commission of Economy and Information Technology, Energy Administration, Transport Departments, Coal Departments (Bureaus) and Administrations of Coal Mine Safety, and the heads of related energy enterprises took part in the meeting at a sub-conference venue.

World’s First 100MW Advanced Compressed Air Energy Storage System Expander Completes Integration Test

On July 16, the Chinese Academy of Sciences Institute of Engineering Thermophysics achieved a new breakthrough in compressed air energy storage research and development with the successful integration test of the world’s first 100MW CAES expander.

Energy storage technologies have been viewed as a key supporting technology for the energy revolution and a national strategic emerging technology. Compressed air energy storage technology holds many advantages such as high capacity, low cost, high efficiency, and environmental friendliness. For these reasons, CAES is one of the most promising large-scale energy storage technologies. The Chinese Academy of Sciences Institute of Engineering Thermophysics is the first institution to carry out CAES research in China. Through 15 years of hard work, the institute has made successful breakthroughs in key technologies such as full-working system design and control, a multi-stage high-load compressor and expander, high-efficiency supercritical heat storage and heat exchange, and other critical components. In 2013 and 2016, respectively, the institute constructed the world’s first 1.5MW and 10MW advanced CAES systems. The institute has been the world’s first to carry out research and development of an 100MW advanced compressed air energy storage system, beginning the project in 2017.

The expander is the key core component of the compressed air energy storage system, and poses numerous technical challenges, such as high load, large flow, complex flow and heat transfer coupling, and varied working conditions. Following years of effort, the R&D team made successful advancements in areas such as the three-dimensional design of the multi-stage expander, a complex shaft structure, adjustment and control of variable working conditions, and other design features. These advancements led to the development of the world’s first 100MW advanced compressed air energy storage system multi-stage high-load expander. The expander has advantages such as a high level of integration, high efficiency, and long lifespan.

On June 30, 2020, The Chinese Academy of Sciences Institute of Engineering Thermophysics completed the processing, integration, and testing of the expander. All test results were successful, meeting or exceeding design indicators. The successful development of the 100MW expander is an important milestone in the field of compressed air energy storage in China, and has promoted China’s advances compressed air energy storage technology to a new level.

The above work has received the support of the National Natural Science Foundation of China, the Chinese Academy of Sciences Strategic Pilot Project (Class A), the Chinese Academy of Sciences' Frontier Science Key Research Project, the National Renewable Energy Demonstration Zone Industrial Innovation and Development Special Project, and the National Key R&D Program Project.

The world's first 100MW advanced compressed air energy storage system expander

Ten Years of the CNESA Energy Storage Industry White Paper

On May 20, the China Energy Storage Alliance hosted the “Assessing Energy Storage’s Development Trends and the Energy Storage Industry White Paper 2020” webinar, which featured support from Sungrow, CLOU, Higee, and Hyperstrong. During the webinar, CNESA Vice General Secretary and Research Director Yue Fen announced the official launch of CNESA’s Energy Storage Industry White Paper 2020.

This year marks the 10-year anniversary of the CNESA Energy Storage Industry White Paper. Over these past 10 years, the CNESA white paper has closely followed the development of China’s energy storage market, earning broad recognition and praise within the industry. The Energy Storage Industry White Paper 2020 provides summary and analysis of the 2019 energy storage market size, policies, projects, vendors, and standards from both the global and Chinese market perspectives, and provides predictions and outlook on future market development both in China and worldwide.

The webinar began with an opening address from China Energy Storage Alliance Chairman Chen Haisheng, followed by presentations on the development and outlook of energy storage from China State Grid Dispatch Center Professor-level Engineer Pei Zheyi and China Energy Research Society Renewable Energy Committee Director Li Junfeng. In discussing the growth of energy storage over the past ten years, CNESA Secretary General Liu Wei expressed warmly, “ten years of the Energy Storage Industry White Paper represents ten years of industry development, and ten years of CNESA growth from ‘zero to one.’” Over these past ten years, CNESA has earned support, care, and direction from many leading industry experts and companies. Over the next ten years, CNESA will continue to work together with our industry colleagues to support the continued growth of the energy storage industry.

1. Global Energy Storage Market Growth in 2019

According to statistics from the CNESA Global Energy Storage Projects Database, by the end of 2019, global operational energy storage project capacity totaled 184.6GW, an increase of 1.9% compared to the previous year. Pumped hydro energy storage comprised the largest portion of global capacity at 171.0 GW, a growth of 0.2% compared with 2018. Electrochemical energy storage followed with a total capacity of 9520.5MW. Among the variety of electrochemical energy storage technologies, lithium-ion batteries made up the largest portion of the capacity, at 8453.9MW.

Figure 1: accumulated global energy storage market capacity (2000-2019)

Figure 2: accumulated global electrochemical energy storage market capacity (2000-2019)

In 2019, new operational electrochemical energy storage projects were primarily distributed throughout 49 countries and regions. By scale of newly installed capacity, the top 10 countries were China, the United States, the United Kingdom, Germany, Australia, Japan, the United Arab Emirates, Canada, Italy, and Jordan, accounting for 91.6% of the globe’s new energy storage capacity in 2019.

In comparison to the 2018 rankings, China, the United States, Germany, Japan, and Canada each moved up one to two places respectively in ranking, with China jumping from second place in 2018 to first in 2019. Both the United Kingdom and Australia occupied the third and fifth spots in 2018 and 2019, respectively, while the United Arab Emirates, Italy, and Jordan were new entrants to the list. In terms of geographic distribution, the countries on the list are mainly located in the Asia-Pacific (3), Europe (3), North America (2) and the Middle East (2). In terms of installed capacity, the top seven countries all added over 100 megawatts of new project capacity, with new capacity in China and the United States each both exceeding 500MW.

2. Chinese Energy Storage Market Growth in 2019

According to statistics from the CNESA Global Energy Storage Project Database, by the end of 2019, operational energy storage project capacity in China totaled 32.4GW, accounting for 17.6% of total global capacity, a growth of 3.6% compared to 2018. Pumped hydro projects accounted for the largest portion of installed capacity, at 30.3GW, an increase of 1.0% compared with 2018. Electrochemical energy storage capacity ranked second, at 1709.6MW, a growth of 59.4% compared to 2018. Among the variety of electrochemical energy storage technologies, lithium-ion batteries made up the largest portion of installed capacity at 1378.3MW.

In recent years, electrochemical energy storage has maintained a steady upward trend, with a compound annual growth rate of 79.7% from 2015-2019. In contrast, physical energy storage growth has been much slower, though technologies such as compressed air energy storage and flywheels saw new application breakthroughs in 2019. More than 2.2GW of new CAES project capacity was announced or began construction in 2019, including the start of construction on the Gezhouba Shandong Feicheng 1.25GW/7.5GWh salt cave CAES project, the nation’s first GW-scale CAES energy storage project. New breakthroughs in flywheel technologies included the deployment of the Beijing Metro Guanyangcheng Station GTR 1MW flywheel system, a MW-level flywheel application and the first in the country to provide a solution for regenerative braking energy recovery in urban rail transit.

Figure 3：accumulated energy storage capacity in China (2000-2019)

Figure 4：accumulated electrochemical energy storage capacity in China (2000-2019)

In 2019, China’s new operational electrochemical energy storage capacity was distributed primarily in 28 provinces and cities (including Hong Kong, Macau, and Taiwan regions). The ten regions with the largest increases in new capacity were Guangdong, Jiangsu, Hunan, Xinjiang, Qinghai, Beijing, Anhui, Shanxi, Zhejiang, and Henan. New energy storage capacity in these regions accounted for 88.9% of China’s total new capacity in 2019.

3. Chinese Energy Storage Market Development Outlook

Since 2014, the CNESA research department has been forecasting the scale of China's energy storage market with the support of industry experts and energy storage companies. The Energy Storage Industry White Paper 2020 provides a forecast for the scale and development trends of China's energy storage market from 2020-2024.

To provide a more comprehensive understanding of the future development of electrochemical energy storage, the CNESA research department has divided its 2020-2024 forecast into a conservative scenario and ideal scenario. These predictions are as follows:

Conservative Scenario: In 2020, the electrochemical energy storage market will continue to develop steadily, and the total operational installed capacity will reach 2726.7MW. During the "14th Five-year Plan" period, as more favorable policies are issued, support for electrochemical energy storage applications will gradually increase and the market scale will continue to expand. The annual compound growth rate (2020-2024) will remain around 55%. By the end of 2024, the market scale of operational electrochemical energy storage is expected to exceed 15GW.

Figure 5：forecast for growth in total operational electrochemical energy storage capacity in China (conservative scenario, 2020-2024）

Ideal Scenario: In 2020, as electrochemical energy storage continues to develop steadily, some pipeline projects that were planned for 2019 but not constructed due to policy influences will be restarted. Thus, the total operational capacity will reach 3092.2MW. During the "14th Five-year Plan" period, taking into account the support of various direct and indirect policies, the annual compound growth rate for 2020-2024 is expected to exceed 65%. By the end of 2024, the total installed scale of electrochemical energy storage is expected to be near to 24GW.

Figure 6：forecast for growth in total operational electrochemical energy storage capacity in China (ideal scenario, 2020-2024)

Whether it is the conservative or the ideal scenario which will play out, the rapid development of the energy storage industry is irreversible. The early growth of energy storage technology and industry has laid a solid foundation for vitality and sustainable development. The development demands of the energy revolution, especially the large-scale utilization of renewable energy and distributed energy, has created a huge demand for energy storage. The gradual deepening of power market reforms also paves the way for energy storage to participate in market-oriented power grid operations. Positive factors continue to play a guiding role for the development of the energy storage industry. Over the next five years, the development of the energy storage industry remains promising. CNESA looks forward to accompanying our industry partners as we strive for the advancement of a bigger and better energy storage industry.

Author: CNESA Research
Translation: George Dudley

2019 Top Chinese Energy Storage Companies Rankings List

On May 20, the China Energy Storage Alliance hosted the “Assessing Energy Storage’s Development Trends and the Energy Storage Industry White Paper 2020” webinar, with the support of Sungrow, CLOU, Higee, and Hyperstrong.

During the webinar, CNESA Vice General Secretary and Research Director Yue Fen announced the official launch of CNESA’s Energy Storage Industry White Paper 2020. The white paper includes the official launch of the 2019 energy storage technology provider rankings, energy storage inverter provider rankings, and the energy storage system integrator rankings. Among these lists, Sungrow placed first in both system integrator rankings and inverter provider rankings, while CATL ranked first among energy storage technology providers. Detailed results of the rankings are below:

1. Energy Storage Technology Provider Rankings

In 2019, among new operational electrochemical energy storage projects in China, the top 10 providers in terms of installed capacity were CATL, Higee Energy, Guoxuan High-Tech, EVE Energy, Dynavolt Tech, Narada, ZTT, Lishen, Sacred Sun, and China BAK.

Note: a “technology provider” here refers to a company which manufactures and sells battery technologies, including battery cells, modules, and packs.

Figure 1：ranking of energy storage technology providers in China, 2019

2. Energy Storage Inverter Provider Rankings

In 2019, among new operational electrochemical energy storage projects in China, the top 10 energy storage inverter providers in terms of installed capacity were Sungrow, Kelong, NR Electric, Sinexcel, CLOU Electronics, Soaring, KLNE, Sineng, XJ Group Corporation, and Zhiguang Energy Storage.

Figure 2: ranking of energy storage inverter providers in China, 2019

3. Energy Storage System Integrator Rankings

In 2019, among new operational electrochemical energy storage projects in China, the top 10 energy storage system integrators in in terms of installed capacity were Sungrow, CLOU Electronics, Hyperstrong, CUBENERGY, Dynavolt Tech, Narada, Shanghai Electric Guoxuan, Ray Power, Zhiguang Energy Storage, and NR Electric. 

Note: an energy storage system integrator refers to a company which engages in the integration of energy storage systems, providing customers with a product that is a complete energy storage system. A complete system includes the energy storage technology, a BMS, inverter, EMS, and other components that create a specific system to meet client specifications.

Figure 3: ranking of energy storage system integrators in China, 2019

Ranking Method: company rankings are based on the CNESA “Global Energy Storage Database,” which collects project data from publicly available sources as well as voluntarily submitted data from energy storage companies. Companies are sorted into the category of technology provider, inverter provider, or system integrator, and ranked according to their new deployment capacity in the Chinese market in 2019.

About the Energy Storage Company Rankings: CNESA began its yearly “Energy Storage Company New Capacity Rankings” in 2015. Over the past five years, the rankings have received widespread attention and recognition within the energy storage industry. In order to guarantee the quality and comprehensiveness of the energy storage project data, provide objective analysis, and track future energy storage trends, CNESA collects voluntary data from its members and other willing energy storage industry companies. This data collection provides an important basis for the development of the “Energy Storage Company Capacity Rankings,” assists in project declaration, and helps government bodies, generation groups, grid companies, and energy storage companies discover the latest industry developments so that they may have a basis for strategic planning.

Author: CNESA Research
Translation: George Dudley

Four Areas of Focus for the Energy Storage Industry

Author’s note: 2020 is the final year of the “Thirteenth Five-year Plan,” and the launch year for the “Fourteenth Five-year Plan.” With the energy storage industry having experienced a period of slowdown and adjustment throughout 2019, many industry stakeholders looked forward to a 2020 which would bring a chance for new developments. Instead, the spread of COVID-19 throughout the globe brought an even bigger shakeup, affecting every sector of the energy storage market both domestic and foreign. But as we look toward the “Fourteenth Five-year Plan” period, it is clear that the current challenges are not enough to rattle the long-term prospects for energy storage. Energy storage in China has gone through many changes over the past ten years, with application trends shifting from a focus on behind-the-meter, to grid-side, and now generation-side applications. Energy storage has always been dependent on its environment and has yet to achieve the status of “independent entity.” Industry members have suffered many setbacks, yet they still persist in the hope that better days lie ahead. While the past ten years belong to history, as members of the industry, we must consider what we can do to achieve continued industry growth and progress.

Price is Not the Deciding Factor for Energy Storage Industry Development

In the energy storage development process, many stakeholders place their hopes in the continued decrease in energy storage system costs, believing that cost is the critical influencing factor in energy storage industry development. While system cost reductions are certainly beneficial to industry growth, they are not the core factor to development. If we take lithium-ion batteries as an example, over the past few years, system hardware costs have decreased rapidly. Even as recently as the first half of this year, bids for energy storage systems paired with wind power fell from 2.15RMB/Wh (PC price) to 1.699 RMB/Wh (EPC price) in just a few months’ time. Such a rapid drop in price was a surprise to many in the industry. While the influence of the COVID-19 epidemic cannot be ruled out as a factor which has caused companies to abandon profit in favor of cash flow, the overall price decrease trend across the entire industry is still obvious.

The components which make up today’s energy storage systems are nearly all mature industrial products. A mature market leaves little room for profiteering. If prices continue to rapidly fall, then it is very possible that product quality and/or guarantees must be sacrificed. If whether prices can continue to decrease rapidly is the critical determining factor for energy storage industry development, then shouldn’t current system prices have already brought us to the eve of a massive burst in industry development? This author believes that product prices are simply a guide for product value. Without a reasonable method for assessing value, blind reduction of costs to stimulate market growth is a fruitless approach.

But from the perspective of investors, are energy storage system prices in fact the critical deciding factor for whether a system will be developed? Most investors are aware of the four major factors affecting investment returns on an energy storage project: initial outlay, cost of capital (interest rate), grid electricity price, and amount of grid-connected electricity. A sensitivity analysis can be used to explore which of these factors will have the greatest impact on investment returns. A sensitivity analysis is an uncertainty analysis method for risk tolerance that determines which out of many uncertain factors will have the greatest impact on the economic benefit indicators of an investment project, then analyzes and measures the degree of impact of these factors to the economic benefit indicators, and finally assesses the project’s ability to take on risk. If we take as an example an energy storage project with initial outlay, cost of capital (interest rate), grid electricity price, and amount of grid-connected electricity at a market average price all of ±10%, the sensitivity analysis results (without describing the process in detail) would be as follows: grid electricity price and amount of grid-connected electricity are equally important, with minor fluctuations in either factor having a major impact on project rate of return. Initial outlay and cost of capital also have influence on rate of return, yet do not have as high of a sensitivity coefficient as grid electricity price and the amount of grid-connected electricity. Therefore, the energy storage system should be developed with the most priority given to producing the greatest amount of grid-connected electricity. These results highlight how in order to achieve maximum profits, the quality and lifespan of energy storage products that can provide profitable grid-connected electricity, as well as grid electricity prices are the most critical factors that affect revenue.

Four Areas of Focus for Energy Storage Industry Development

To promote long-term, sustainable industry development, this author believes that the following four areas should be emphasized: creation of a market mechanism, discovery of new applications, raising of capital, and development of new technologies.

Creation of a Market Mechanism: over these past few years of energy storage development, there has been no lack of polices in support of the energy storage industry. But a careful look at many of these policies reveals that many are simply guidelines, and few offer concrete action. The primary reason for this is that there is still no mechanism in place to determine the reasonable economic value of energy storage’s services. Energy arbitrage, frequency regulation, grid-side energy storage, and renewable integration applications are all major energy storage functions, yet still have yet to see the creation of stable earnings mechanisms. Additionally, some of the more specific policies which provide “one size fits all” solutions can be questionable, such as the many policies released this year which require renewable energy stations to deploy energy storage. Some provinces have required deployment of storage systems with capacity equal to 20% of a station’s power generation and with a duration of 2 hours. Other provinces have required storage system capacity to be at least 5% of a station’s power generation and with a duration of 1 hour. Perhaps a more suitable policy would focus on the index for assessing the effectiveness of an energy storage system’s adjustment capabilities rather than capacity ratios. Navigating through the “minefield” of a policy-oriented market is a necessary process for energy storage’s development.

Discovery of New Applications: The many varieties of energy storage services, such as peak shaving, frequency regulation, voltage regulation, demand response, black start, and many more allow energy storage to have value across a wide range of scenarios. But as industry stakeholders, we must make an effort to continue expanding the range of settings in which energy storage is used, keeping our eyes peeled for new opportunities in which our industry can link with specific application markets to solve customer issues, and transform energy storage from an “accessory” to the perfect solution for a variety of different scenarios.

Raising of Capital: the importance of capital to industry development in its early stages goes without saying. For the energy storage industry, we must try harder to obtain new sources of capital while lowering capital costs. Of course, when it comes to industry development, an industry which can bring its customers and investors sustainable and predictable incremental value is a good industry. Industry stakeholders must respect capital owners, and make a sincere effort to use capital to promote industry development.

Development of New Technologies: technology innovation is the foundation for furthering industry development. As discussed above, the amount of electricity which a system connects to the grid has a major influence on investment return. This ability is closely linked to the lifespan of a system—how much energy it can charge and discharge. Among current mature market technologies, we still have yet to see a perfect solution. Increasing energy storage system safety and efficiency, lengthening lifespans, lowering operations and maintenance costs, and increasing environmental friendliness are all challenges which must be resolved through the continued efforts of technology researchers and developers.

Conclusion

Energy storage is a technology which can change the time and space in which we use our energy, and stands at the intersection between the historical background of the energy revolution and the new era of energy system reforms. Energy storage industry stakeholders must brace themselves for the challenge, and work to move away from the trap of low-price competition by focusing on the value of energy storage functions, searching for new technology innovations, and reducing costs by extending lifespans and improving quality. These efforts will ensure long-term, sustainable development. System costs are not the critical factor to industry development, rather, market demands are the core driver to industry development. Technologies and market are at opposite ends of supply and demand, and policy mechanisms and capital are the intermediate bridge between supply and demand. Though there are still many challenges ahead of us, this author is confident that the persistence and dedication of industry stakeholders both new and experienced will bring brighter days ahead!

Author: Peng Kuankuan Wanke Energy Technology Co.,LTD
The views and opinions expressed in this article are the author’s and do not necessarily reflect those of Wanke Energy Technology or China Energy Storage Alliance.

Development Outlook for Energy Storage in China’s “Fourteenth Five-year Plan” Period

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

Solar Grid Parity May Pave a New Path for “Solar-plus-storage” Market Development

In 2019, China’s solar industry transitioned from an era of subsidized solar to a new era without subsidies. Solar power has now reached a state of near grid parity, meaning that solar generation must now face direct competition with conventional fossil fuel generation. Those in the energy industry are aware of the challenges of solar generation, including instability and intermittency, sensitivity to weather changes, and the difficulty of the grid to consume solar generation on a large scale. These issues put solar power at a disadvantage when compare to conventional generation and pose a challenge to the entire energy system. Energy storage offers one method of confronting these challenges. Energy storage can stabilize generation, improve power quality, provide storage of excess generation, help increase the grid’s consumption of renewable generation, and increase the flexibility of grid dispatch. Through grid parity, solar power generation may now pave the way for development of the “solar-plus-storage” market.  

1.       China’s Solar-plus-storage Market Scale

According to CNESA Global Energy Storage Project Database statistics, as of the end of 2019, operational energy storage projects paired with solar generation (including molten salt thermal storage) totaled 800.1MW of capacity, an increase of 66.8% compared to the 2018 year’s end and comprising 2.5% of total energy storage capacity (including physical, electrochemical, and molten salt energy storage capacity). In 2019, newly operational solar-plus-storage capacity totaled 320.5MW, an increase of 16.2% compared to 2018. Numerous renewable energy companies have begun to understand and recognize energy storage and the value it can bring to solar generation.

Figure 1: total operational solar-plus-storage project capacity (2016-2019)

Data source: CNESA Global Energy Storage Project Database

I.       Centralized solar-plus-storage projects

According to CNESA database statistics, as of the end of 2019, China had deployed a total of 625.1MW of operational energy storage projects paired with centralized solar generators, equivalent to 78.1% of all solar-plus-storage capacity. Regionally, these projects were deployed primarily in China’s northern regions, among which Qinghai province featured the greatest proportion of capacity at 294.3MW, or 47.1%. In 2019, State Grid Qinghai Power Co. announced their innovative shared energy storage model, China’s first shared energy storage blockchain platform. The program’s transaction model combines negotiated service agreements, competitive market pricing, and grid dispatch to provide a new method for marketized transactions between energy storage stations and renewable energy generators, promoting the widespread application of energy storage for increasing grid consumption of renewables, and opening a new market for centralized solar-plus-storage. Qinghai province also saw two molten salt thermal storage projects go online in September 2019, each at a scale of 50MW.

Figure 2: Regional distribution of operational centralized solar-plus-storage projects (MW%)

Data source: CNESA Global Energy Storage Project Database

II.       Distributed solar-plus-storage projects

According to CNESA database statistics, as of the end of 2019, China had deployed a total of 175.0MW of operational energy storage projects paired with distributed solar generation, or 21.9% of total solar-plus-storage capacity. Distributed solar-plus-storage has a wide variety of applications, such as in rural areas with poor grid access, industrial solar-plus-storage projects, solar+storage+charging stations, island solar-plus-storage, military solar-plus-storage applications, and others. Of these applications, solar-plus-storage projects deployed in rural areas comprise the greatest portion of capacity, at 69.1MW, or 39.5% of total applications, a decrease of nearly 14% compared to the end of 2018. In contrast, industrial solar-plus-storage project capacity rose 8% over the same period, showing that an increasing number of industrial customers are using solar-plus-storage to lower the costs of their energy bills.

Figure 3: Distribution of operational distributed solar-plus-storage projects by application (MW%)

Data source: CNESA Global Energy Storage Project Database

2.  Chinese Solar-plus-storage Project Case Studies

I.       Qinghai Golmud DC-side Solar Generation Plant Energy Storage Project

The project is located in a solar industry park in Golmud city, Qinghai province. The project was developed by the Huaneng Group. Solar generation capacity totals 180MW, while energy storage capacity totals 1.5MW/3.5MWh. The energy storage project utilizes lead-carbon batteries and LiFePo lithium-ion batteries, and averages one daily charge-discharge cycle for storage of solar energy that would normally be curtailed. The project went operational in January 2018 and was developed at a total investment cost of 950,000 RMB.

The project relies on distributed DC-side solar PV and energy storage technologies to help solve the problem of pairing between solar generation and the energy storage system. In comparison to conventional AC-side solar PV and energy storage technologies, distributed DC-side solar PV energy storage technology not only reduces the power variation between the photovoltaic components and batteries, but also utilize the original photovoltaic inverter system’s inverter equipment, step up equipment, and circuitry, reducing the need to invest in additional equipment and saving physical space. In addition, the DC-side access does not affect the PV station’s original outgoing capacity, nor does it require approval for new grid-connected equipment. For older solar PV stations which produce high-cost electricity, the energy storage retrofit can significantly increase grid-connected power generation and economic benefit.

The solar PV station in the above case is one of relatively early construction, producing power at a cost of 1 RMB/kWh. If a 250kW/500kWh lead-carbon battery energy storage system was to be connected to this station, it could enjoy the same price rate for generation as the solar PV station. With an annual charge-discharge rate of 4000 cycles, the system would generate an additional 150,000kWh annually, providing 150,000 RMB of revenue at an ROI period of 6.96 years. At present, it is very economical to retrofit or add new energy storage systems to solar PV stations which are compensated at a rate of 0.9 RMB/kWh or higher. With the continuous decline in the cost of energy storage batteries, it may also be economical for PV stations which are compensated at 0.7 RMB/kWh to install new energy storage systems.

II.       BYD industrial park renewable energy microgrid project 

The project is located at the BYD plant in the Pingshan New District, Shenzhen, and was self-constructed by the BYD Electric Power Research Institute. Construction began in September 2013 and completed in July 2014. The project covers a total area of 1500 sq. meters, has a capacity of 20MW/40MWh, and was developed at a total investment cost of 148 million RMB. The station includes a medium voltage system, fire suppression system, ventilation system, energy conversion system, battery, and battery management system. Of these components, the energy conversion system, battery, and battery management system were researched and developed by BYD. The entire station is comprised of 59,000 220ah battery cells and 128 160kW PCS systems, with a design life of 20 years. The station’s primary purpose is smoothing of solar PV power generation, load shifting, and providing the industrial park with the ability to independently adjust its power consumption.

Figure 5: BYD Industrial Park renewable energy microgrid project

Source: BYD Electric Power Research Institute

According to station operation data, the system is combined with the park’s 12MW rooftop solar PV, storing off-peak electricity at night. The park’s real-time electricity consumption can be optimized based on external conditions, allowing the system to utilize a dynamic ratio of solar generation, energy storage, and grid energy. According to estimates, after taking into consideration the electricity cost savings for the park and the basic industrial electricity capacity costs, the project will achieve a return on investment in eight years. In areas where the peak and off-peak electricity price differences are high, this model shows early commercial value.

For distributed solar-plus-storage projects, the key factor to generating revenue is the price difference between peak and off-peak electricity at the customer side. Currently, as costs of energy storage continue to decrease, it will be economically viable to develop such projects in areas with a peak and off-peak price difference of 0.75 RMB/kWh or more.

3.       China’s Solar-plus-storage Policy Environment

In addition to the national “531 Policy” released in 2018, there have been many recent regional policies which have had major influence on solar-plus-storage, such as those in Anhui, Xinjiang, Tibet, Shandong, and Jiangsu provinces, as well as the northwest China region. A few of these polices are listed below:

On May 31, 2018, the National Development and Reform Commission issued the "Notice on Matters Related to Photovoltaic Power Generation in 2018" (the "531 Policy”), which tightened subsidies and indicators for solar generation and made clear that the future development of solar generation would be based on unsubsidized grid parity. In response, many solar PV companies set their sights on energy storage, viewing the combination of solar generation and energy storage as one way for the future solar PV market to develop.

In September 2018, the Hefei government released the first subsidy policy for distributed solar PV combined with energy storage, the “Suggestions for Promoting the Development of the Solar PV Industry,” encouraging the development of solar-plus-storage applications by providing a 1 RMB/kWh charging subsidy to energy storage systems.

At the end of 2018, the Northwest China Energy Regulatory Bureau released an updated edition of the “Two Regulations,” which strengthened the assessment accuracy and penalization of renewable energy stations, as well as increased the types and standards for compensation. Renewable energy companies can optimize the operations of their renewable energy generators by installing energy storage, minimizing the risk of penalization and increasing revenue.

In June 2019, the Xinjiang Development and Reform Commission released the “Notice on the Development of Generation-side Solar-plus-storage Projects,” which provides 100 hours of priority generation for a five-year period to solar PV stations that install new energy storage systems.   

In August 2019, the Shandong Energy Administration released the “Notice on Improving Grid Access for Grid Parity Projects in Shandong,” which encouraged large-scale centralized solar PV projects to install energy storage systems in order to reduce solar curtailment.

In December 2019, the Jiangsu Energy Regulatory Office released the "Notice on Further Promoting Grid Connection and Use of Renewable Energy” and “Distributed Generation Market Transaction Regulations for Jiangsu Province (Trial).” The policies encourage renewable energy generators to install a certain amount of generation-side energy storage, support energy storage project participation in the ancillary services market, and promote the combined operation of energy storage systems with renewable energy to increase system regulation abilities. The policies also encourage distributed generation projects to increase their power supply flexibility and stability through methods such as installing energy storage.

Although the Xinjiang policy provided centralized solar-plus-storage projects with 100 hours of priority generation, calculations from project operators revealed that investment returns would not be ideal. Even so, this type of project still has potential profit points. At present, ancillary services reforms in the five northwestern provinces of China, including the construction of power spot markets, are currently under way. In the future, solar-plus-storage projects are very likely to have the opportunity to provide ancillary services such as peak shaving and frequency regulation, as well as participate in renewable energy market transactions. In addition, at a time when the economy is not ideal, some enterprises still choose to build solar-plus-storage projects, in part to accumulate project experience and create opportunities for potential future profit points. The business models, ownership, capital schemes, role division, and cooperation models of such projects are all still being explored.

4.       Solar-plus-storage Market Development Trends

The development trends of solar-plus-storage in China are closely linked to the development trends of solar PV. In the beginning, solar-plus-storage relied primarily on solar PV subsidy policies and the solar-plus-storage subsidy policies of individual provinces and cities, saving money on electricity fees through energy arbitrage and preventing losses by improving reliability of the power supply and power quality. These models gradually shifted to supporting the self- generation and use of solar power and promotion of onsite consumption of solar generation. During this period, solar PV subsidies began to decline, and the early stage of marketization began to appear. In addition to increasing solar PV generation income, energy storage could also delay the need for new investment in distribution networks, increase the stability of the power supply, and provide value-added services for the distribution of electricity. In the future, users may harness solar-plus-storage applications to avoid high electricity prices while also participating in the ancillary services market to earn greater profits. In the future we may also expect a variety of business models to emerge, and solar-plus-storage will formally enter the full marketization stage.

As the global energy transformation continues, future power grids around the world will be dominated by a high proportion of renewable energy. In this energy structure, solar PV will account for the largest proportion of renewable energy. The International Renewable Energy Agency (IRENA) forecasts that by 2050, global installed solar PV capacity will reach 8,519GW, while the installed capacity of wind power will reach 6,014GW, which together will account for 72.5% of the global installed electric power capacity. The development of renewable energy requires the support of flexible resources such as energy storage. According to IRENA’s forecast on the global energy storage market, under the baseline scenario, global stationary energy storage station capacity will reach 100-167GWh by 2030. In an ideal scenario, this number will reach 181-421GWh. No matter which outcome, the highest portion of energy storage capacity will be dedicated to time shifting of solar PV generation.

Therefore, in the future, as the global energy structure shifts to a high proportion of renewables and the large-scale development of solar PV, the solar-plus-storage model will become one of the primary models for energy storage development in the future, ushering in a huge potential new market for energy storage.

Authors: Yu Zhenhua, Chairman, and Ning Na, Senior Research Manager, China Energy Storage Alliance
Translation: George Dudley

CNESA Global Energy Storage Market Analysis – 2020.Q1 (Summary)

1.       Market Size

As of the end of March 2020 (2020.Q1), global operational energy storage project capacity (including physical, electrochemical, and molten salt thermal energy storage) totaled 184.7GW, a growth of 1.9% in comparison to 2019.Q1. China’s operational energy storage project capacity totaled 32.5GW, a growth of 3.8% compared to 2019.Q1. Global operational electrochemical energy storage capacity totaled 9660.8MW, of which China’s operational electrochemical energy storage capacity comprised 1784.1MW.

In the first quarter of 2020, global new operational electrochemical energy storage project capacity totaled 140.3MW, a growth of -31.1% compared to the first quarter of 2019. Of this new capacity, China’s new operational electrochemical energy storage capacity totaled 74.5MW, a growth of 47.5% compared to the first quarter of 2019. Global new electrochemical energy storage projects either planned or under construction totaled 2.4GW of capacity, of which China’s planned/under construction projects totaled 609.5MW of capacity. Both globally and in China, the majority of these planned/under construction projects are being developed for grid integration of centralized renewable energy, at 40.9% and 76.4% of the total planned/under construction applications, respectively.

Graph 1: global total operational energy storage project capacity (MW)

Graph 2: China’s total operational energy storage project capacity (MW)

2.       Market Developments

In the first quarter of 2020, the COVID-19 epidemic spread throughout the globe, not only threatening the health and safety of those around the world, but also affecting global industries. Some that were hit particularly hard include the restaurant, entertainment, travel, and exhibition industries. In the short term, energy storage has been affected by delays or cancellations in production, project commissioning and delivery, business discussions, and international market development. For some small- and medium-sized companies, the effects of the epidemic have brought great operating pressure.

In the global market, the outbreak of COVID-19 and the various control measures implemented by different countries have stimulated enthusiasm for installing solar-plus-storage systems that can provide flexible and self-generated electricity. Although the epidemic threatens the supply chain and has caused project delays, governments are still taking active measures to promote the application and development of solar-plus-storage. For example, the governments of California and Australia have listed solar PV combined with energy storage as a basic service for residents. In the domestic Chinese market, both the results of CNESA surveys and the government’s resolve to provide economic stimulus to support epidemic recovery indicate that the impact of the epidemic on 2020’s overall energy storage market is likely to be limited. The energy storage market should continue to grow steadily, and market growth is likely to be higher than that of 2019. In the first quarter of 2020, domestic front-of-the-meter projects (including renewable integration, frequency regulation ancillary services, and grid-side projects) saw continued growth, with three new projects put into operation, including a 30MW/108MWh energy storage project at Jinjiang Anhai Park, a 15MW/7.5MWh energy storage frequency regulation project at the Hengyun power plant, and an 18MW/9MWh energy storage frequency regulation project at the Heyuan power plant. These three projects accounted for 84.6% of the total scale of new operational projects in the first quarter. In addition, new front-of-the-meter projects either planned or under construction totaled 525.8MW, accounting for 86.3% of new planned/under construction project capacity in the first quarter.

3.       About this Report

CNESA Research customers can access the full version of the CNESA Global Energy Storage Market Analysis – 2020.Q1 by visiting the ESResearch website.

The ES Research website launched in January 2018 to provide an online platform for CNESA research products and services.  Products and services include the Global Energy Storage Database, Energy Storage Industry Tracking, energy storage industry research reports, and research consultation services. To learn more, please visit www.esresearch.com.cn. For questions or comments, please contact the CNESA research department at the email or phone number below.

Phone: 010-65667068

Email: esresearch@cnesa.org

How Can Energy Storage Better Participate in China’s Ancillary Services Market?

As power market reforms continue to develop, the ancillary services market has become a major area of focus.  Energy storage serves as one strategy for ancillary services, capable of providing fast, precise response and flexible deployment.  Energy storage has already achieved commercial breakthroughs in ancillary services applications.  Yet in many facets, a market mechanism and policy environment that supports the efficient and rational application of energy storage is still lacking. As the amount of renewable generation in China increases, the power system requires greater integration of flexible resources for regulation.  In the low-carbon energy system of the future, energy storage will play a critical role in renewable integration and grid stability. Compared to many other regions, China’s ancillary services market is still in the infant stages of construction.  Reasonable market regulations require further exploration, and actions must be taken to ensure existing regulations are updated, thereby ensuring that the energy system moves in the direction which supports long-term development.

Marketization Progresses, Yet Many Problems Persist

Current problems and challenges to the participation of energy storage in the ancillary services market can be summarized as follows:

1.      Defining energy storage’s identity in the ancillary services market

Defining energy storage’s “identity,” in other word, determining how energy storage should enter the market, is an issue with challenges at two levels:

The first challenge is that while regulatory structures may allow energy storage to enter the market, in actual practice implementation may face difficulties. Regulations across many regions have already defined energy storage’s place in ancillary services markets, allowing energy storage to participate as both independent stations or when paired directly with thermal generation. Yet in actual practice, aside from energy storage systems which are tied directly to thermal generators, many energy storage systems are unable to enter the market because current transaction and dispatch methods are unable to support such systems’ provision of services. Other problems exist in land approval, grid connection, and other permissions. Looking forward, independent energy storage stations and aggregated behind-the-meter energy storage stations will be a driving force for the participation of energy storage in ancillary services markets, though additional technical support and policy developments are needed to make such models a reality.

The second challenge is of the “treatment” of energy storage in comparison to other participating entities, or the problem of “fairness.” Currently, there are many regions where redundant generators squeeze the market space from high-quality resources.  Ancillary services dispatch strategies are also simple, and there is no optimized scheduling mechanism for independent energy storage stations. These dispatch strategies will also be unable to meet future power spot market demands.  It is for these reasons that energy storage projects have tended to be bound with independent dispatching entities, as it is still difficult for independent storage stations to truly and fairly compete with other market entities.

2.      Energy storage investment returns are still difficult to guarantee

Though energy storage takes part in the ancillary services market, profits have still been difficult to guarantee. When the market first opened, energy storage could obtain high value returns primarily in areas where ancillary services would receive compensation according to effectiveness. However, rapidly changing policies have had a major influence on the investment returns for energy storage that participates in the ancillary services market.  In 2019, the North China Energy Regulatory Bureau modified the upper limit of the K value for the “two regulations”* in northern China, and amended the western Inner Mongolia calculation methods for both daily grid regulation and the daily contribution of electricity provided by AGC frequency regulation. These measures caused a noticeable decline in revenue for frequency regulation services.

3.      A long-term operations mechanism for an ancillary services market is still lacking

Generally speaking, China’s ancillary services market mechanism has yet to fully form. The costs and compensation for energy storage and other new grid regulation resources that provide frequency regulation do not completely reflect the needs of the power system, and the market has not transmitted the initial costs for such resources to the actual beneficiaries. This issue is part of a larger problem with ancillary services. Ancillary services are closely related to the construction of power markets, particularly spot markets. There is an urgent need to improve the ancillary services price mechanism through further power market reforms, and gradually link ancillary services market regulations with spot markets. These actions are necessary for new technologies and new market entities to freely participate in the market and obtain reasonable value returns.

How Regulations for Energy Storage Participation in Ancillary Services Markets are Designed in Foreign Countries

The United States was the first country to incorporate energy storage into its ancillary services network at a large scale. Numerous commercialized energy storage projects currently provide ancillary services to the US power grid. Energy storage has been able to successfully integrate into the US ancillary services system not only due to declining costs of storage, but also, and more importantly, due to actions by the Federal Energy Regulatory Commission (FERC) to define energy storage’s role within the ancillary services market. These actions include clarifying what kind of compensation energy storage should receive for its services, where ancillary services fees should come from, and other measures which have provide a legal and policy basis for supporting storage. Below, we examine some of the successful US experiences with energy storage.

1.      Defining energy storage’s identity within the ancillary services market

In the US electricity wholesale market, energy storage is viewed as a special type of power resource, defined as a non-generator resource (NGR). Unlike generators, an NGR can be flexibly dispatched to any level within their operating capacity range. NGRs have two major characteristics: first, NGR models are usually simpler than that of conventional generators; there is no cost for startup or shutdown, minimum load cost, or transition cost. Second, NGRs can provide energy services, capacity services, and a variety of ancillary services. There are only two price quotations for energy storage in the wholesale market, a charge quotation and a discharge quotation. To guarantee participation in the market, operations costs are kept low to guarantee a winning bid, and energy storage infrastructure is typically quoted at zero.

2.      Defining of the “pay-for-performance” mechanism

Based on the principle that energy storage is a resource able to provide high-quality electricity, it is provided status equal to that of conventional energy storage as a provider of ancillary services. The compensation mechanism used for ancillary services provided by conventional energy sources is also suitable for energy storage. Therefore, no matter the type of energy storage technology, it will receive reasonable compensation based on grid regulation ability.

On Dec 12, 2011 FERC released order no. 755, Frequency Regulation Compensation in the Organized Wholesale Power Markets. The order requires power markets to release compensation plans which pay according to performance. Frequency regulation resources are compensated according to their actual level of contribution. The order requires frequency regulation ancillary services markets to provide two forms of compensation for frequency regulation resources: 1) a capacity payment which includes the opportunity costs of marginal resources, and 2) a performance-based payment which reflects the quality of the frequency regulation service being provided (for example, according to the accuracy of response to the dispatch signal) and the amount contributed. In general, the greater the mileage of frequency regulation, the higher the frequency regulation performance index, and the greater the compensation will be. Under the new compensation plan, capacity payments are no longer a “fixed” amount. When the frequency regulation performance index is at zero, it is possible that the capacity payment may also be zero. Therefore, the service provider’s frequency regulation performance will influence the final amount of compensation it receives for frequency regulation services. These measures ensure that energy storage systems providing AGC frequency regulation receive suitable compensation for the services they provide.

3.      Optimizing the clearing process

The PJM market is an example of a mature power spot market that has successfully operated for many years. In the PJM market, ancillary services and the spot market are jointly optimized and cleared, ensuring that accuracy is maintained for price changes due to frequency regulation provision and the opportunity cost losses of providing backup services. In order to fully marketize ancillary services, the specific timing of the PJM market joint optimization and clearing is as follows:

In the day-ahead market, the ISO will jointly optimize clearing of energy, frequency regulation, and reserves, but does not settle the frequency regulation. In the hour-ahead market, the ISO will reoptimize clearing, and determines the generator group and capacity of the winning frequency regulation resource. Before entering the hour of operation, the generators must adjust their output level according to the frequency regulation order, in other words, complete its bid commitment. After entering the hour of operation, the ISO will engage in joint optimized clearing of energy, backup, and frequency regulation. Each dispatch hour is divided into 12 scheduling periods, and each scheduling period lasts five minutes. Energy clearing is carried out every five minutes for market settlement. Once the location marginal price (LMP), frequency regulation capacity price, and frequency regulation mileage price for each dispatch period are determined, the arithmetic mean of the 12 scheduling periods is calculated, and the energy, frequency regulation, and reserve price for the dispatch period is calculated, resulting in the final frequency regulation market price.

This type of long-term mechanism for ancillary services, that is, one in which the costs of ancillary services is shared by power customers, has been implemented in most mature power markets abroad.

Suggestions for Regulations Addressing the Participation of Energy Storage in the Chinese Ancillary Services Market

Ancillary services markets in the US and other international markets are based on mature power spot markets, and designed according to electricity pricing signals with different timing and location characteristics.

In China, power spot market trials have only just begun to take off. The completion of a modern power market system will still require a large amount of time and effort. For the short and medium-term future, the power spot markets will remain in the trial period. In these trial regions, ancillary services compensation mechanisms must be paired with the construction of power spot market transaction mechanisms in order for gradual marketization to occur. For energy storage, installations which have regulatory capabilities and can receive orders from dispatch can be viewed as ancillary services providers, and may have grid-dispatching regulations designed according to their performance. At the same time, a quantitative evaluation must be conducted for energy storage’s frequency regulation performance as a substitute for conventional generators, thereby optimizing frequency regulation capacity and allowing more high-quality resources to enter the market. At the operational level, optimized joint clearing of frequency regulation, reserve, and energy would help increase the level of market efficiency. In terms of price sharing, it is ideal for the customer side to bear the costs of ancillary services, and for customers to participate in spot market transactions on a single track (that is, without priority power purchase customers).

In those regions in which spot market trials have not yet been initiated, the “planned dispatch+direct transaction” model will continue to exist for a long period. In these regions, the ancillary services abilities of generators with the least efficient adjustment capacity can be used as the starting point for compensated ancillary services, reflecting the fairness with which ancillary services are provided. At the same time, the inclusion of reserve capacity ancillary services products allows generators providing reserve capacity to receive reasonable benefits. In regard to price sharing, following the release of the plan, customers participating in direct transactions should bear the cost of ancillary services according to their own usage, and gradually transition to a model in which all ancillary services are borne by users.

Payment for ancillary services by power customers is an inevitable step in the transition of the existing ancillary services market from a “zero-sum game” between generators to true marketization. As the cost of sending electricity to the grid gradually liberalizes, the theoretical basis for the generation-side to cover ancillary services costs (in other words, including the cost of ancillary services in the benchmark electricity price) no longer exists. In a true transaction, both sides engage in a “game” over electricity prices, and ancillary services are not discussed. Considering that ancillary services are an important part of energy production, when it comes to marketization, no matter what the cost of ancillary services, they must be paid for by the power customers. In addition, as renewables continue to penetrate the grid at increasingly high capacity, one way to view the principle of “the beneficiary pays” is that since consumers use a higher proportion of renewable energy, they therefore enjoy the environmental benefits brought by green energy, and should in turn pay the cost for these benefits. The fees should not only cover the cost of the renewable energy, but also include the costs of ancillary services required to support renewable energy.

There are still many difficult questions, such as how costs may be passed on to consumers if pay-for-performance may cause ancillary services fees to rise, as well as the influence of the government’s efforts to lower the cost of electricity consumption in the real economy. These questions are ones that regulators currently tackle with, and one of the major reasons that the development of an ancillary services mechanism has been so difficult. In regard to these questions, we offer a few thoughts:

1.       China’s overall ancillary services costs are relatively low compared to that of other countries with marketized energy systems, especially compared to countries with high levels of renewable energy, such as Germany and some northern European countries.

2.       Due to many years of rapid construction of the power generation sector combined with recent economic slowdown, China is currently experiencing a stage of excess power availability. As power transactions become increasingly marketized, many regions are seeing direct transaction price averages which are lower than that of state-approved electricity prices, with some customers already enjoying preferential prices. Under these condition, transferring the cost of ancillary services to power customers will allow customers to see the costs of ancillary services on their power bills, yet experience an overall lowering of their electricity costs.

3.       With the increased penetration of renewables in the grid, the need for ancillary services has also increased. As a high-quality regulatory resource, energy storage’s participation in the ancillary services market will help inhibit the rise of ancillary services costs.

The allocation of ancillary services costs to customers is the inevitable trend of the market. The pace at which this trend develops may be adjusted according to the pace of construction of the electric power spot market, but should not be implemented too late in the process. If we wait until the proportion of renewable energy in the power system is high enough to be noticeable to users, then resistance will be even greater than it is now.

In summary, when it comes to energy storage in the ancillary services market, a market mechanism should be optimized in stages. The market identity of various energy storage applications must be defined first, regulatory requirements in different power system environments should be clarified, and, finally, market regulation should be implemented which reflect the flexible regulation capabilities of energy storage, with beneficiaries paying for the cost of services.

*The “two regulations” are the Regulations for Operations and Management of Grid-Connected Power Stations in Northwest Regions and Regulations for Ancillary Services Management of Grid-Connected Power Stations

Author: Guo Fan
Translation: George Dudley

How Have Different Countries Facilitated the Participation of Distributed Energy Storage in Power Markets?

Market regulators in the United States, United Kingdom, Germany, Australia, and other countries have been active explorers of models and mechanisms which allow distributed energy storage to participate in the wholesale electricity market. The experiences of these countries have provided references for other worldwide distributed energy storage markets to update their relevant market rules.

United States

The United States has taken many steps in both technical and market regulations to remove barriers for energy storage and distributed energy to participate in the power market. In technologies, the US Department of Energy released the Network Optimized Distributed Energy Systems (NODES) program, which provided funding to support the grid integration of virtual energy storage resources. The program has helped to develop a system that can flexibly regulate and optimize distributed energy applications such as energy storage, improving the grid’s ability to safely integrate distributed energy resources, and ensuring that the quality of customer electricity is not affected. In market regulations, the Federal Energy Regulatory Commission (FERC) released Order No. 792 in 2013, which simplified the grid connection process for small-scale generation equipment. In 2015, FERC released Order No. 745, which allowed consumer energy products and services to participate in the wholesale electricity market. Finally, in 2016, FERC begin to solicit proposals and comprehensively revise the rules on energy storage and distributed energy participation in the electricity market.

Below, we explore these power market regulations in detail.

In November 2013, FERC released Order No. 792, simplifying the grid connection process for small-scale generation equipment, including energy storage systems. During the policy development process, FERC conducted a seminar focused on resolving the issue of whether energy storage systems should or should not be classified as small-scale generation (equipment capable of generating electricity in accordance with grid connection regulations and agreements). In the end, FERC Order No.792 defined small-scale storage as the following: equipment which, after connecting to the grid, is able to generate/store electricity, and has an output power no greater than 20MW. Small-scale generation falling under this new definition includes energy storage technologies, thereby providing a foundation for the future of energy storage and creating a clear path for the identity and integration of storage in the grid under the jurisdiction of FERC.

In January 2016, the United States Supreme Court issued its decision on FERC Order 745, ruling that consumer energy products and services, including demand response, would be allowed to participate in the wholesale power market and collect compensation similar to conventional generation resources. The ruling allowed I&C and residential applications of renewable energy technologies to receive greater compensation, stimulating growth of solar PV, energy storage, energy management, and other new energy technologies. The ruling also increased the competitiveness of demand response, distributed generation, energy storage, and other new resources with conventional fossil fuel generation, helping drive down the costs of electricity.

Also in 2016, the California Independent System Operator (CAISO), the Pennsylvania-New Jersey-Maryland Interconnection (PJM), and the New York Independent System Operator (NYISO) submitted proposals to FERC, suggesting that it update its market regulations to promote greater aggregation of distributed energy resources to participate in power market transactions. In response to these proposals, FERC in November 2016 released a notice on proposed amendments, suggesting how to eliminate barriers to the participation of energy storage and distributed energy aggregation in the wholesale electricity market. The notice first provided a definition for electric energy storage, stating, “we define an electric storage resource as a resource capable of receiving electric energy from the grid and storing it for later injection of electricity back to the grid regardless of where the resource is located on the electrical system. These resources include all types of electric storage technologies, regardless of their size, storage medium (e.g., batteries, flywheels, compressed air, pumped-hydro, etc.), or whether located on the interstate grid or on a distribution system.” FERC addressed distributed energy systems by proposing that each RTO/ISO “define distributed energy resources aggregators as a type of market participant that can participate in the organized wholesale electric markets under the participation model that best accommodates the physical and operational characteristics of its distributed energy resource aggregation.” The notice provided suggestions on qualifications, capacity requirements, coordination between parties, contracting, and other subjects related to distributed energy aggregation in the power market.  These subjects are shown in the table below:

Table: FERC suggestions for regulatory updates allowing distributed energy aggregators to participate in the power market

In February 2018, FERC released Order No. 841, “Final Rule on Electric Storage Resource Participation in Markets Operated by Regional Transmission Organizations, or RTOs, and Independent System Operators, or ISOs.” The ruling formally required RTOs and ISOs to establish wholesale electricity market models and market rules which recognize the physical and operational characteristics of electrical energy storage resources so that they may participate in RTO/ISO markets. FERC outlined four standards for market participation models and market regulations: 1) the model must ensure that energy storage resources are eligible to provide all of the technical services that they are capable of in the RTO/ISO markets (including capacity, energy, and ancillary services); 2) grid operators must be able to dispatch energy storage resources, and said resources must be able to set the wholesale market clearing price as both a wholesale buyer and seller in accordance with existing wholesale market price rules; 3) models must account for the physical and operational characteristics of energy storage resources through bidding parameters or other methods; 4) establish a minimum capacity requirement for energy storage resource participation in the market that does not exceed 100kW.

FERC also launched a new rule-making process to solicit suggestions for distributed resources aggregation. In April 2018, FERC held a seminar on distributed energy technologies to discuss topics including location requirements for distributed energy aggregation, distributed energy interconnection and grid access, the feasibility of distributed energy aggregation at multiple network nodes, double compensation of services, data and modeling of distributed energy, federal and state agency regulatory boundaries and coordination, and other issues. Following this seminar, FERC received more than fifty comments and suggestions. As of this writing, FERC is still in the stage of receiving and evaluating these suggestions to formulate the next work plan.

United Kingdom

Unlike the series of orders released by FERC in the United States, the United Kingdom’s Office of Gas and Electricity Markets (Ofgem) and the Department for Business, Energy & Industrial Strategy released the “Smart Systems and Flexibility Plan” (hereafter referred to as the “Plan”) in July 2017. The Plan promotes the construction of a smart and flexible energy system in the UK primarily through “removal of barriers to smart technologies (such as storage), enabling smart homes and business, and improving access to energy markets for new technologies and business models.” The Plan is the UK’s most important framework document for promoting energy storage in the energy market and solving key issues within the UK power system.

In order to reduce the threshold for energy storage and other flexible resources to participate in the market, the Plan proposes that the government should lower the market entry and management requirements for energy storage and demand response equipment, allow demand response providers to reallocate assets, and allow revenue stacking between the capacity market and ancillary services. Not long after the release of the Plan, many energy storage projects turned their focus to participation in the capacity and ancillary services markets.

In December 2017, the Department for Business, Energy & Industrial Strategy and the National Grid announced that the de-rating factor for 30-minute batteries would be lowered to 17.89% from the current rating of 96% in the T-4 capacity market, and lowered to 21.34% in the T-1 capacity market. An energy storage system with duration shorter than 4 hours would receive reduced compensation, leading to a shift in energy storage applications from the capacity market to the wholesale and/or balancing market to derive compensation from energy arbitrage.

In response to this market change and to eliminate barriers for distributed energy and other load-side resource participation in the balancing market, in May 2018, UK transmission operator National Grid released a report announcing relaxation of entry requirements for the balancing market. The report announced the creation of a new category of market participant, the “Virtual Lead Party,” as well as a new balancing market service provider, “secondary balancing mechanism units (SBMU).” SBMUs have a minimum size of 1MW, and can act independently or as aggregated resources. To simplify implementation, in the future the grid connection guidelines will be further revised and simplified, clarifying the process for aggregators to participate in the balancing market.

Germany

Germany was an earlier explorer of models such as “community energy storage” and “virtual power plants.” These efforts also revealed many obstacles to distributed energy storage’s participation in the power market. In recent years, Germany has also made efforts to modify its market regulations to allow distributed energy resources to more easily participate in the power market. Some of the most influential changes were the German Federal Network Agency’s updates to the bidding times and minimum bid size for secondary and tertiary frequency control.

Beginning in July 2018, secondary and tertiary frequency control bidding times were adjusted from a weekly to daily schedule. In addition, the auction times were modified from two 12-hour periods per day, to six 4-hour periods per day. Bidding was also modified to begin at 10:00AM a week before the delivery date, and close at 8:00AM the day before the delivery date.

Also beginning in July 2018, small-scale service providers that have obtained Federal Network Agency permission may provide secondary and minute control reserve services of less than 5MW (the previous minimum bid size). Such bids may include 1MW, 2MW, 3MW, etc. on the condition that in each frequency control area and delivery period, the provider only submits one bid for each frequency control product, thereby preventing large energy storage stations from breaking into smaller units to participate in bidding.

These regulatory adjustments have allowed operators of small-scale renewable energy systems, demand-side management systems, battery energy storage, and other systems the opportunity to participate in the ancillary services market. Daily bidding and a shorter service provision period have allowed available energy storage capacity to participate in more target markets, helping to increase avenues of revenue for aggregated storage capacity.

Australia

Australia has promoted the participation of energy storage in power market transactions primarily through regulatory changes that allow more open markets, maintain a fair and reasonable competitive environment, and create new market entity categories.

On November 24, 2016, the Australian Energy Market Commission (AEMC) released its “National Electricity Amendment Rule 2016” to "untie" ancillary services from the existing supply source system and open them to new market participants, namely, market-oriented ancillary service providers other than large power generation companies. After revision to the Australian frequency regulation ancillary services rules, market participants were allowed to provide ancillary services at one location, or can combine loads or generators from multiple locations together to offer services. The rule came into effect in July 2017, greatly increasing the opportunities for energy storage to participate in the ancillary services market, not only helping to increase the supply of frequency regulation service resources, but also reducing the market price of such services.

Among actions to create a fair and reasonable competitive environment In August 2017, AEMC released “National Electricity Amendment Rule 2017 (Contestability of energy services),” which took the following actions: 1) restricts the grid from owning or controlling behind-the-meter resources and allows consumers more control over the use of their assets; 2) restricts distribution system operators’ use of behind-the-meter resources to obtain unreasonable compensation (namely, compensation which has not been permitted by regulators). Distribution network operators should purchase these services from consumers or other energy suppliers; 3) improves the clarity and transparency of the energy regulatory framework, defines the scope of energy services subject to economic regulation, and defines the boundaries of the energy market opening; 4) stimulates and encourages market competition so as to foster the innovation and application of advanced energy solutions; 5) prevents distribution companies from maximizing grid benefits by restricting behind-the-meter resources from providing multiple services; 6) supports consumer use of market methods to choose energy supply methods. The Rule aims to protect behind-the-meter resources from unfair competition when participating in the electricity market by defining the ownership and control of behind-the-meter resources and clarifying which services behind-the-meter resources can provide.

In addition, AEMC is currently revising the rules, hoping to create a new market entity—the Demand Response Service Provider (DRSP)—so that demand response resources can directly bid into the wholesale market, providing the demand-side with greater and more transparent market opportunities. The creation of the DSRP would also invite more competition into the wholesale market to prevent artificially high prices and maintain power system stability.

Summary

With such a large amount of distributed energy storage scattered throughout the consumer side, many countries have confronted the challenge of aggregating distributed energy storage to participate in power market transactions. Countries such as the United States, the United Kingdom, Germany, and Australia have begun to eliminate barriers for distributed energy storage to participate in the electricity market by lowering market entry thresholds, creating new market entity categories, and opening more markets to distributed energy storage. However, distributed energy storage involves a number of variables, including technical equipment of different types, working conditions, and technical characteristics, as well as different market entities, such as energy storage equipment owners, aggregators, distribution companies, and RTOs/ISOs, and a variety of revenue categories, such as consumer bill management, energy markets, and ancillary service markets. With such a variety of factors, in the future, power systems must see greater coordination and optimization in technologies, market models, policies, and market rules to reach the goal of maximizing the value of distributed energy storage.

Author: Yue Fen
Translation: George Dudley