Key Highlights:
- By 2027, China will increase its electricity generated from new energy sources to account for over 20% of its total power mix, up from more than 13% in 2023. Meanwhile, the country aims to enhance the operational capacity of its pumped storage hydropower stations from 33 million kilowatts in 2023 to more than 80 million kilowatts.
- China sets to integrate new energy sources extensively into its national energy mix, with energy storage solution identified as a crucial support for this advancement. By 2027, the country plans to establish a policy framework to boost the market-driven development of energy storage.
- China requires flexible deployment of energy storage systems alongside power generation, encourages independent storage solutions for power grids, and advocates for the adoption of vehicle-to-grid (V2G) interaction and the integration of energy storage systems by end-users.
- The development of new energy storage in China is predominantly driven by governmental directives. A total of 26 provinces and municipalities have mandated the inclusion of energy storage systems in new energy projects. By the end of 2023, newly commissioned energy storage in China has seen both its power and capacity surge by over 150% on a year-on-year basis.
- Energy storage projects primarily generate revenue by exploiting the difference in electricity prices during peak and off-peak periods. In 18 Chinese provinces and cities the peak-to-valley price disparity has surpassed the cost of electricity for commercial and industrial energy storage systems. Notably, in Guangdong's Pearl River Delta area, this price gap has soared to more than 1.3 yuan/kWh.
Data Centers, 5G Base Stations, and Industrial Parks to Deploy Energy Storage Solutions
The new policy outlines requirements for energy storage solutions, mandating flexible deployment on the power generation side, encouraging independent energy storage systems on the grid side, advocating for end-user storage solutions and V2G interactions on the user side.
Power generation side: China requires that new energy enterprises adopt flexible approaches in deploying new-type energy storage. These approaches include building their own facilities, joint construction, or leasing options. Enterprises should size their energy storage to meet the specific needs of their power generation projects.
Grid side: China promotes the construction of standalone energy storage system. In remote or grid-constrained areas, energy storage can serve as an alternative to electricity transmission and transformation stations.
User side: The country recommends that electricity end-users, including data centers, 5G base stations, and industrial parks, appropriately equip themselves with energy storage facilities. Additionally, electric vehicles (EVs) can enhance energy system flexibility through smart and orderly charging, V2G interactions, and battery swapping modes.
China's Newly Commissioned Energy Storage Capacity in 2023 Surged by Over 150% YoY
China achieved a significant milestone by commissioning 31.39GW/66.87GWh in new-type energy storage capacity, surpassing the 30GW target set for 2025 two years ahead of schedule. The new capacity boasts an average storage duration of 2.1 hours, marking a remarkable year-on-year surge of over 150% in both power and capacity.
Local government support has been a key factor in driving the development of new energy storage facilities, with 26 provinces, cities, and municipalities in China implementing regulations mandating the inclusion of storage solutions in all new energy projects prior to grid connection. Due to the lack of market mechanisms and specific operation guidelines, enterprises have tended to opt for low-cost solutions, such as power curtailment or selecting energy storage products with cheaper upfront costs. However, these solutions have limited dispatching capabilities and provide inadequate support for the use of renewable electricity. Moreover, due to unclear profit mechanisms for energy storage investments, the average utilization rate of mandated storage facilities stands at only 6.1%.
Source: Company outlets, GL Consulting
Peak-valley Price Gaps Exceed Electricity Cost of Energy Storage in 18 Provinces and Cities
The pricing mechanisms and profit models for future energy storage systems will be further enhanced. Currently, the high investment costs for new types of energy storage are mainly absorbed by renewable energy companies themselves. According to the China Electricity Council, equipping a solar PV power station with energy storage equivalent to 20% of its installed capacity or providing 2 hours of energy storage duration, would increase the initial investment by 8%-10%. Wind farms with similar storage capacities could expect an initial investment increase of 15%-20%.
Energy storage projects primarily generate profits by capitalizing on the price discrepancy between peak and off-peak electricity rates. Other strategies to secure investment returns from these projects are not clearly defined. In 2023, the electricity cost for commercial and industrial energy storage was 0.686 yuan/kWh. The peak-valley price differentials in 18 Chinese provinces and cities surpassed this figure, with Guangdong's Pearl River Delta area recording differentials exceeding 1.3 yuan/kWh.
The original text of the policy can be accessed via the following link:
https://www.gov.cn/zhengce/zhengceku/202402/content_6934708.htm
To get detailed full text, send an email to glconsulting@mysteel.com
Edited by Navy Liu: liuchuanjun@mysteel.com