Recently, I attended the 7th Energy Storage Carnival and the release of the 2024 rankings of Chinese energy storage companies held by the Energy Storage Leaders Alliance in Wuhan. Representatives from battery manufacturers, system integrators, investors, and asset operators were present. After reviewing the published statistical data, I was filled with mixed emotions. During the evening banquet, the leader of a newly listed energy storage company delivered a speech, becoming emotional while discussing the industry’s intense competition. Despite this, the company’s financial performance for 2024 was commendable. In contrast, many leaders in the audience were facing net profit deficits, which left me feeling even more conflicted.
The development of new energy storage in China has rapidly progressed, seemingly covering the decade-long development journey of photovoltaics and wind energy in just two years. It feels as though the industry has not fully experienced the transitional phase from policy-driven growth to market-driven channels. If the development of photovoltaics and wind energy is akin to “crossing the river by feeling the stones,” then energy storage has reached a stage where those who have already crossed the river are setting the rules. This might suggest a lack of patience or a distortion of market behavior based on supply and demand dynamics.
From the discussions and exchanges at this conference, I gleaned several key insights:
- From 2022 to 2024, the annual shipment rankings for domestic commercial energy storage have seen significant fluctuations, indicating that the industry landscape is far from being established.
- With the introduction of 472Ah square battery cells, the market has already seen a variety of specifications, including 2XX, 3XX, 4XX, 5XX, and 6XX cells, all ready for delivery. This diversity is even more dazzling than the specifications available for photovoltaic modules.
- One company unveiled a storage cabinet product with a power rating of 125 kW and a capacity of 261 kWh, with standard sales prices dropping to nearly 0.5 CNY per watt-hour. The profitability of system integrators remains poor, with very few companies achieving positive net profits.
- I urged during the afternoon forum that “the continuous profitability of system integrators is the foundation for the sustainable and healthy development of the industry, and it is also a guarantee for the sustainable operation of energy storage investors and asset operators.” The energy and power sectors indeed strive for a systematic and consistent reduction in cost per kilowatt-hour or energy consumption. However, it appears that while industry representatives speak of value from the stage, many below are fiercely competing for orders at prices close to BOM costs, perpetuating a cycle of dissatisfaction.
- There are signs of differentiation in the roles of investors, asset operators, and system integrators. Professional asset operators are emerging from a coarse market development to a more refined competition. For instance, companies like Xingji Yuneng and Huagong Energy have successfully derived considerable revenue from peak-valley price differentials by fully exploring load characteristics, demand management, electricity sales integration, and demand-side response.
- Virtual power plants (VPP) should represent the ultimate form of commercial energy storage, while overall energy management on the distribution side is the ultimate positioning for investors and asset operators. Companies should no longer need to establish a separate power department.
Since my last article titled “My View of the Leading Brand in Domestic Commercial Energy Storage Solutions” over a year ago, the development of commercial energy storage in China has been tumultuous. Various aspects such as development cycles, costs, profit-sharing ratios, delivery periods, financing costs, and contract payment terms are all under pressure. However, as a sector that has achieved both technological and economic feasibility, it still exhibits a trend toward sustainable development.
In 2024, I expect to undertake 150 business trips, most of which involve communication and exchanges with investors, developers, and operators. These interactions, along with the multidimensional engagement between investors, operators, and product and solution suppliers, have led to new insights about the industry from the perspective of product and solution providers. I intend to continue shaping the narrative for 2025, focusing on my vision of the leading brand in domestic commercial energy storage solutions.
Throughout 2024, I observed several issues:
- The industry has been overly focused on investment while neglecting operations. Early investors have become too reliant on the single revenue source of peak-valley price differentials. Changes in policies can lead to operational data falling short of expectations, making it difficult to achieve conservative revenue increases through refined operations. In the same region, the profit-sharing ratio of projects that have been operational for two years can reach as high as 9:1, and the current situation has even reached a 5:5 sharing of price differentials, leading to contractual disputes.
- There are concerns regarding the reliability of technical indicators. Issues related to charging and discharging efficiency, capacity retention, equipment online rates, fault recovery times, adaptability to scenarios, and the sustainability of solution providers have been met with skepticism. Last year, several integrators exited the sector, raising questions about sustaining EMC-15 operations.
As we enter 2025, numerous energy and electricity policies have been issued at both the national and local levels. These include management regulations for distributed photovoltaic power generation, which reflect the determination of the government to accelerate the establishment of a new energy system and promote high-quality development of renewables. According to the International Energy Agency’s definition of low-carbon transformation in power systems, China is currently in the third of six stages. This stage is characterized by increasing difficulty in balancing supply and demand for electricity, necessitating a systematic enhancement of flexibility in the power system.
Existing facilities and improved operational methods are insufficient to meet flexibility demands, requiring new investments in flexibility solutions. Previously, the revenue from grid-side energy storage heavily relied on the leasing of renewable energy capacity, which is a temporary phenomenon in the development of new energy storage and lacks sustainability in the long run. The 136 Document will effectively guide the transition of front-end energy storage from a cost-centered approach to a value-oriented asset positioning. The acceleration of the electricity spot market’s formalization process and the potential widening of spot price differentials will significantly enhance the trading attributes of energy storage, thereby improving the absorption of renewables and increasing their penetration in the grid.
Looking ahead to the coming years leading to 2025, what should domestic commercial energy storage product and solution providers focus on? It is certainly not about continuously competing on price, as such price wars do not benefit any party in the long run. Instead, we should consider what solutions can be developed to become the first-brand solution provider. Here are some thoughts for reference:
Firstly, the value proposition of a leading brand should always return to the financial models of investors and asset operators, aiming to provide the lowest cost solutions per kilowatt-hour while effectively safeguarding the financial metrics of investors. This includes overall investment returns, static payback periods, and cumulative net cash flows over the entire lifecycle. The foundational elements supporting these critical financial indicators encompass all aspects from project development to project recovery, including static investment, operational costs, capacity assessments, revenue guarantees, financing feasibility, State of Health (SOH) retention, charging and discharging efficiency, Depth of Discharge (DoD), fault rates, fault recovery times, insurance guarantees, algorithm strategies, operational friendliness (EMS), recovery, and residual value management.
Secondly, we must construct a closed-loop and guaranteed system operation and maintenance management capability. Operations and maintenance (O&M) should be prioritized, as energy storage equipment maintenance closely resembles communications equipment maintenance. Preventive maintenance and corrective repairs are equally important. Equipment damage often begins at a localized level, affecting other parts and leading to larger issues—a phenomenon comparable to a domino effect. Preventive maintenance can reduce or avoid minor damages or eliminate small risks before they escalate into more significant faults. Generally, planned work is three to four times more efficient than unplanned work.
Thirdly, the ability to assess capacity in a way that can adapt to evolving requirements must be built. Capacity assessment is crucial for investor returns, and as the diversification of commercial energy storage profits increases, the parameters for capacity assessment must extend beyond just 15-minute load data to encompass a multidimensional framework that includes park-level primary energy sources (distributed photovoltaics, decentralized wind), load management, and secondary energy sources (new energy storage).
Fourthly, product and solution suppliers must enhance their ability to support project financing for investors. Presently, private investors primarily rely on leasing companies for project financing, with annual financing rates between 6% and 7.5%, which many consider high. A first-brand product and solution provider has the opportunity to leverage its solution advantages and sound financial health to collaborate with industry financing institutions, providing investors with more accessible and cost-effective financing options. Reducing financing costs from 7% to 4% could inject positive energy into healthier industry chain development.
Fifthly, the development of precise operational capabilities for projects should be prioritized. Whether energy storage serves as a standalone financial asset, a key dispatch element of a park, or a core asset of a virtual power plant, precise operations are increasingly crucial for revenue preservation and enhancement. The optimization of diversified revenue combinations supported by algorithms is essential for operational success.
Sixthly, we must ensure the core technical performance indicators of energy storage systems, such as capacity retention (SOH), charging and discharging efficiency, and DoD. Current battery manufacturers typically promise lifespan indicators based on operational conditions and standard temperatures. However, it is essential to consider real-world performance when assessing these indicators. The ability to provide near-real operational data will be highly valuable for investors.
Lastly, building a robust insurance capacity for energy storage systems is critical. Recent policies from various government bodies have sought to strengthen financial support for new energy storage projects, including the expansion of specialized insurance products. The implementation of commercial general liability insurance is valuable in mitigating economic responsibilities arising from operational risks in energy storage systems.
As we approach 2025, the energy storage landscape is expected to evolve significantly. There is an anticipated demand for energy storage in existing distributed photovoltaic projects. Furthermore, international markets, particularly in Europe and the U.S., are experiencing rapid growth in commercial energy storage due to mature electricity markets and clear economic models.
In summary, from 2022 to 2024, the changes in domestic commercial energy storage shipment rankings indicate that the industry landscape is still developing. The competition is one of comprehensive capabilities and value combinations, with the final market leaders yet to be determined. As Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” The industry must enhance self-regulation and prioritize safety while guiding technological advancements toward the lowest cost per kilowatt-hour, allowing for more sustainable and healthier development.
As I write these words, the sunlight begins to break through the clouds outside, illuminating the photovoltaic panels on the roof. I conclude this report with a line of poetry: “Shoulder the great responsibility, stride forward with song, for every effort will bear fruit.” My team and I will adhere to these principles to drive the development of the industry.
