Commercial and Industrial Energy Storage Reaches a Significant Turning Point!
On March 13, 2025, the Sichuan Provincial Development and Reform Commission released a notice regarding the improvement of the new energy storage pricing mechanism. This notification indicates that for user-side energy storage projects that commence operation before December 31, 2026, the newly added capacity demand charges will be managed at the provincial level for the first two years. This new regulation opens up a new realm of “installation freedom” for commercial and industrial energy storage.
The capacity demand charge is a fixed fee that users pay based on transformer capacity or maximum demand, constituting 15%-30% of the electricity cost for commercial and industrial users. In the energy storage investment sector, the issue of insufficient transformer capacity has long hindered project realization for investors and owners. The cost structure of user-side energy storage often makes capacity demand charges unbearable for companies, as these fees arise from increased equipment capacity.
The newly issued regulations specifically address commercial and industrial energy storage. They stipulate that for user-side energy storage projects that begin operation before the end of 2026, the additional capacity demand fees incurred in the first two years after operation will be subsidized at the provincial level. This makes Sichuan the first province to formally implement a reduction in capacity demand charges for user-side energy storage, with unprecedented relief (full exemption for two years). For instance, a 1MW/2MWh user-side energy storage station could save approximately 600,000 to 1,000,000 yuan in capacity demand fees over two years, thereby reducing project costs by at least 20%.
The detailed rules include:
- Capacity Charge: Determined by the additional capacity of dedicated transformers for energy storage devices.
- Demand Charge: Based on the maximum demand during the month, using storage charging load; if data is unavailable, the average value of adjacent times will be used.
- Charging Side: Independent energy storage charging will participate in market transactions as a power user, exempt from transmission and distribution charges as well as additional fees, further reducing electricity costs.
- Discharging Side: Before the operation of the spot market, discharge prices will reference coal power contract prices and be linked to time-of-use electricity pricing, significantly increasing revenue during peak periods.
This policy change is not an isolated innovation for Sichuan. Back in 2024, the province had already issued a notice to promote the healthy development of new energy storage by simplifying the grid connection process for storage projects. Early in 2025, the city of Zigong implemented a policy of exempting capacity demand charges for operational centralized charging facilities until the end of 2030, successfully facilitating the construction of several demonstration projects by companies such as PetroChina’s Sichuan Zigong sales branch.
The innovative pricing mechanism provides comprehensive support for storage projects from “construction to grid connection to profitability.” The new regulations particularly emphasize “user-side storage,” targeting high-energy consumption scenarios like data centers and industrial parks. This is crucial for Sichuan, a province where hydropower constitutes over 80% of the energy mix but often faces the “seasonal contradiction” of excess water during wet seasons and power shortages in dry seasons.
With the acceleration of collaborative projects between Sichuan and Chongqing and a surge in new energy installations, the pressure on the grid to accommodate peak demand has intensified. Therefore, the introduction of this regulation is not an isolated measure but rather a synergistic response to the province’s energy structure and existing policies.
The essence of Sichuan’s new regulation is to reconstruct the economic model of commercial and industrial energy storage through a dual-driven approach of “lowering initial investment and expanding revenue channels,” thereby activating societal capital’s participation in energy storage. If this policy proves effective in Sichuan, it could facilitate the implementation of local storage projects and inspire other provinces to follow suit, potentially providing a “Sichuan solution” to the challenges of scaling commercial and industrial energy storage across the nation.
It is worth noting that the new regulations only specify a two-year exemption period, and how additional capacity demand charges will be allocated afterward remains unclear. Industry insiders have pointed out that if users are required to shoulder these costs after two years, it might trigger a “policy cliff effect.” In response, individuals from the Sichuan Development and Reform Commission have indicated plans to explore a “dynamic adjustment and market-based allocation” mechanism in the future, potentially integrating some costs into transmission and distribution pricing or green electricity premiums to ensure a smooth transition.
Furthermore, various provinces have adjusted their time-of-use electricity pricing. According to incomplete statistics from the CESA Energy Storage Applications Branch’s industry database, in 2024, the national user-side energy storage installations increased by 2.67GW/6.35GWh, accounting for 5.79% of capacity, primarily concentrated in Jiangsu, Zhejiang, and Guangdong provinces. Among these, East China accounted for 1.45GW/3.47GWh of user-side installations, representing over half of the national total. Standalone commercial and industrial energy storage projects accounted for about 80% of the new installations, while projects like storage-charging/solar-storage, distributed solar photovoltaics, and microgrids accounted for around 20%.
For user-side energy storage stations, time-of-use pricing is a key determinant of profitability. In 2024, provinces such as Zhejiang, Anhui, Hubei, Jiangsu, Henan, Gansu, Heilongjiang, Shandong, and Yunnan adjusted their time-of-use pricing policies, with average peak-valley price differentials exceeding 0.7 yuan/kWh in over 40% of provinces nationwide. Currently, 28 provinces allow for two charges and two discharges. Many regions have also set low-cost afternoon and deep valley periods and implemented seasonal pricing, with peak-valley pricing generally higher in winter and summer compared to spring and autumn.
Compared to 2023, while the overall peak-valley price differentials have slightly decreased in 2024, the rapid decline in energy storage system costs has improved overall profitability for user-side commercial and industrial storage. Notably, the Pearl River Delta region in Guangdong has consistently maintained the highest peak-valley price differential in the country (reaching 1.2843 yuan/kWh in March 2025), with a dual-peak time-of-use pricing structure (10 AM to 12 PM and 2 PM to 7 PM), supporting a “valley charging-peak discharging-flat charging-peak discharging” strategy. For a 1MWh project, the internal rate of return (IRR) could reach 15%, with a payback period of about 5.4 years.
In conclusion, the accelerating development of artificial intelligence has significantly increased global computing power demand and the proliferation of data center projects. With predictions indicating that by 2030, China’s data centers will require over 700 billion kWh of electricity, energy storage solutions will become increasingly vital. The collaboration between energy storage and data centers, particularly in the context of advancing AI technologies, will drive further innovation and investment in this sector.
