Overview | Advancements in New Energy Storage
As the scale of installed capacity continues to grow, technological innovations are making significant strides, and the electricity market system is becoming increasingly refined, the role of operational entities is becoming clearer. New energy storage is making substantial progress toward large-scale implementation.
Currently, for new energy storage to achieve large-scale, industrial, and market-oriented development, it must overcome three key challenges related to technology, cost, and quality.
Exploring and improving market participation mechanisms for new energy storage and establishing effective business models are crucial for addressing the challenges of scaling up, industrialization, and marketization. This is also an essential path toward achieving high-quality development in the new energy storage sector.
By Chen Yan, Reporter for Outlook Weekly
When the wind power from the Gobi Desert in Qinghai lights up the distant city of Jinan in Shandong through the “West-to-East Power Transmission” project, or when a virtual power plant in Hainan brings relief to the city during a scorching summer, new energy storage has become more than just a technical term. It is a driver of green transformation and a cornerstone of energy security.
New energy storage refers to energy storage technologies, excluding pumped hydro storage, that primarily output electricity and provide services. These technologies include advanced lithium-ion batteries, flow batteries, compressed air storage, and flywheel energy storage. The role of energy storage can be simply understood as a “super power bank,” capable of smoothing out the fluctuations of unstable photovoltaic and wind power, thereby increasing the share of renewable energy. It can also enhance the flexibility of conventional power sources such as thermal and nuclear power.
New energy storage is a crucial technology and infrastructure for building a modern power system, supporting the achievement of carbon peak and carbon neutrality goals. It is also a vital sector for fostering new domestic energy business models and seizing strategic advantages internationally. In 2022, the National Development and Reform Commission and the National Energy Administration issued the “14th Five-Year Plan for the Development of New Energy Storage,” which aims for new energy storage to transition from the initial stage of commercialization to a phase of large-scale development by 2025, establishing conditions for large-scale commercial applications.
This year marks the concluding year of the “14th Five-Year Plan” and is a pivotal year for the development of the new energy storage industry. Driven by both policy encouragement and market demand, new energy storage is transitioning from pilot demonstration projects to large-scale commercial use, entering a rapid development phase.
By the end of 2024, the total installed capacity of new energy storage projects across the country is expected to reach 73.76 million kilowatts (168 million kilowatt-hours), which is approximately 20 times the figure at the end of the “13th Five-Year Plan” and reflects an increase of over 130% compared to the end of 2023. The average energy storage duration has increased to 2.3 hours, up by about 0.2 hours from the end of 2023.
According to interviews conducted by Outlook Weekly, new energy storage still faces challenges on its path to scaling up, including imbalanced technological development, low utilization rates of storage facilities, long payback periods, and price competition. Addressing these challenges through market-driven mechanisms is essential for the high-quality development of new energy storage.
Entering a Rapid Development Stage
In 2024, the role and positioning of new energy storage will undergo fundamental changes, significantly enhancing its importance and value. The industry is advancing rapidly, with the scale of installed capacity expanding, technological breakthroughs occurring, and the electricity market system continuously improving.
The cumulative installed capacity of new energy storage has now surpassed that of pumped hydro storage, becoming the second-largest flexible adjustment resource in the power system after thermal power. This development is a crucial support for the large-scale application of renewable energy.
An example is the Chengxuan Energy Storage Station in Yuanqu County, Shanxi, built by China Nuclear Huineng (Shanxi) Energy Co., Ltd. This is the largest energy storage station in Yuan City, with a capacity of 200 MW/400 MWh, allowing for a maximum charging and discharging power of 200 MW and a maximum energy storage capacity of 400 MWh. This means that once fully charged, it can supply electricity for an entire year to 130 households, based on an average annual household electricity consumption of 3,000 kWh.
In the first quarter, the company aims to achieve an on-grid electricity target of 28 million kWh. Once operational, the station will provide various services such as peak-shaving, frequency regulation, black start, and demand response, thereby enhancing the grid’s peak-shaving capacity, the comprehensive utilization of renewable resources, and the stability of the grid in Yuan City.
The scale of the Chengxuan Energy Storage Station reflects the trend towards centralized and large-scale energy storage stations in China. By the end of 2024, projects with an installed capacity of 100,000 kilowatts and above will account for 62.3% of the total, marking a 10 percentage point increase from 2023. Projects with capacity between 10,000 and 100,000 kilowatts will account for 32.8%, while those below 10,000 kilowatts will make up 4.9%.
This growth is underpinned by a continuous increase in renewable energy installations. By the end of 2024, the total installed capacity of renewable energy in China is expected to reach 1.889 billion kilowatts, representing a 25% year-on-year increase and accounting for approximately 56% of the country’s total installed capacity.
Industry experts emphasize the need for a dual approach to enhancing both supply and consumption of renewable energy. It is essential to strengthen the supply capability to ensure energy generation and to accelerate the construction of a new power system to guarantee energy utilization. Within this context, new energy storage plays a crucial role in peak supply and ensuring the safe and stable operation of the power system.
According to a forecast by the Zhongguancun Energy Storage Industry Technology Alliance, new energy storage installations are expected to add between 40.8 GW and 51.9 GW by 2025, with cumulative installed capacity exceeding 100 million kilowatts.
Technological innovations continue to make progress. New energy storage technologies, including electrochemical storage, mechanical storage, chemical storage, and electromagnetic storage, are emerging simultaneously. Advances in these technologies will significantly promote energy production and consumption and facilitate the collaborative use of multiple energy sources, further aiding the scaling up of new energy storage.
The new energy storage industry is also seeing enhancements in the electricity market system. Since the initiation of a new round of electricity system reform in 2015, China has established a multi-layered and unified electricity market system that connects provincial, regional, and inter-provincial operations, integrating medium- and long-term markets, spot markets, and ancillary services.
By November 2024, Guangdong, Guangxi, Yunnan, Guizhou, and Hainan provinces will have completed trial runs of monthly spot settlement. This trial attracted 315 power generation entities and 1,800 generating units, marking a historical breakthrough in market coverage, types of participating power sources, and the number of trading entities.
This trial run reflects the accelerated entry of operational entities into the market. Over the past decade of electricity system reform, the number of electricity operating entities in China has surged from 42,000 to 816,000, an increase of nearly 20 times.
As distributed energy sources, virtual power plants, and load aggregators enter the market rapidly, enhancing the development level of China’s new energy storage industry has become a significant challenge. Experts believe that it is essential to strengthen the coordination and connection of storage with development plans for distribution networks, renewable energy, and electric vehicles. Relevant departments should lead organizations to adjust demand, grid structure, and load characteristics based on the characteristics of renewable resources, predict storage capacity needs, and periodically publish these demands to guide investment through market mechanisms.
Yuan Zhenhua, Executive Vice President of the Zhongguancun Energy Storage Industry Technology Alliance, stated that all aspects of the storage industry, including raw materials, core technology, integration, and application, are developing rapidly and are in a state of robust competition. Currently, China’s battery production accounts for 70% of the global market share, while electrochemical storage accounts for 75%. The production of positive electrodes and electrolytes constitutes 90% of the market, demonstrating a clear competitive advantage and indicating that a large-scale capacity has been effectively established.
Overcoming Three Key Challenges for Scaling Up
At present, for new energy storage to achieve large-scale, industrial, and market-oriented development, it must overcome three key challenges: technology, cost, and quality.
Critical core technologies still require breakthroughs. Current energy storage products, especially large-scale energy storage systems, have not yet fully validated their cycle counts and overall lifecycle usage, necessitating further advancements in technology research and development.
Zhao Peng believes that some new energy storage technologies are still immature. For instance, in the case of electrochemical storage, nearly all manufacturers claim a lifespan of “6000 full charge and discharge cycles,” with a usage period of around 10 years. “However, 6000 cycles are merely experimental data, and the industry has not yet been fully mature for ten years, making it difficult to reliably validate industrial products in the short term,” he explained.
On February 17, the Ministry of Industry and Information Technology, along with eight other departments, issued the “Action Plan for High-Quality Development of New Energy Storage Manufacturing,” which encourages the development of diversified new energy storage core technologies and supports breakthroughs in efficient integration and intelligent control technology, focusing on multi-dimensional safety technologies throughout the entire lifecycle.
Compulsory storage requirements hinder market regulation. The market participation mechanism for new energy storage is still imperfect. Due to mandatory storage requirements, some energy storage projects have faced situations where they are merely set up without effective utilization, resulting in low utilization rates and extended payback periods, thus failing to fully realize the value of storage.
Data from the China Electricity Council indicates that the average equivalent utilization coefficient of storage built alongside renewable energy was only 6.1% in 2022. By June 2024, the average daily operational time for these storage systems was just 3.74 hours, with an annual utilization index of 31%. The actual operational efficiency of built-in storage remains low, and its regulatory function within the power system has not been fully realized.
Industry insiders believe that the wind-solar-storage model has facilitated rapid growth in the energy storage sector, but the previously enforced compulsory storage mechanism has led to disorderly competition.
In February, the National Development and Reform Commission and the National Energy Administration released a notification emphasizing that “storage configuration should not be a prerequisite for the approval, grid connection, and on-grid operations of new renewable energy projects.” The cessation of “compulsory storage” is expected to foster a new development landscape for new energy storage.
According to Wang Xin, this policy sends a positive signal that the construction of storage projects must adhere to market principles, transitioning from “mandatory configuration” to “on-demand configuration.” This shift is anticipated to accelerate the improvement of utilization rates and diversify revenue models for new energy storage projects, thereby promoting the healthy development of the industry.
While discussing market regulation mechanisms, it is also essential to establish a sustainable commercial operating model. Currently, the profitability of new energy storage primarily relies on capacity prices, price differentials, and ancillary services, with construction and operational costs being pivotal in determining profitability. Many industry insiders believe that energy storage projects should explore multiple revenue sources beyond fixed capacity pricing to maximize their value based on their flexibility and diverse application scenarios.
Quality poses safety risks. Quality is a crucial prerequisite for sustainable development, yet the current new energy storage sector is experiencing intense price competition, with some companies sacrificing quality for short-term market share gains.
Some firms have expanded production and reduced prices to gain market share, with storage battery prices dropping from 1.5 yuan/Wh to around 0.5 yuan/Wh in just over a year. There are concerns that significant price drops in a short period could lead to declines in product quality, which in turn could pose safety risks.
In addition to concerns at the manufacturing level, disorganized competition is also observed among energy storage station owners. Some renewable energy companies tend to opt for lower-cost equipment to expedite grid connection, neglecting the performance effectiveness of the associated storage systems.
Wang Xin argues that the key to promoting the healthy development of the new energy storage sector lies in encouraging manufacturers to focus on enhancing research and development, technological innovation, and continuously improving the performance of storage products, while relevant departments should strengthen regulatory oversight to prevent “bad practices from driving out good ones.”
Improving Market Dynamics for Maturity
Industry insiders assert that while energy storage is allowed to participate as independent entities in various electricity markets, including electricity quantity and ancillary service markets, the market mechanisms needed to fully leverage the value of new energy storage and achieve high-level utilization have yet to be established, especially in comparison to supportive policies for pumped hydro storage.
Exploring and refining the market participation mechanisms for new energy storage and establishing effective business models are key to creating a healthy market landscape. This is essential for overcoming the challenges of scaling up, industrialization, and marketization, and is a necessary path towards the high-quality development of new energy storage.
From the perspective of electricity pricing mechanisms, widening the peak and valley price gap is vital. Under the current pricing mechanism, expanding the fluctuation range of medium- and long-term electricity market trading prices will enable prices to effectively reflect the supply and demand relationship of electricity at different times.
In January, the National Development and Reform Commission and the National Energy Administration issued the “Implementation Plan for the Optimization of Power System Regulation Capacity (2025-2027),” which proposed improving the peak and valley pricing mechanism. In regions operating on a spot market, it is essential to scientifically set market price limits and facilitate reasonable peak and valley price differentials through market competition, actively promoting the participation of various adjustment resources in the spot market.
Under favorable policies, there are new operational requirements for companies. “In the context of peak and valley price differentials, properly strategizing for electricity spot market transactions is crucial, necessitating enhanced operational capabilities to track local electricity market and grid operations and develop more targeted trading strategies for better revenue generation,” said Zhao Peng.
From a cost distribution mechanism perspective, it is important to consider enriching the variety of ancillary services suitable for new energy storage and promoting the sharing of ancillary service costs among electricity users to rationally distribute storage costs.
Industry insiders believe that by adding services that align with the characteristics of new energy storage technologies, such as ramping and system inertia, it can provide the necessary regulatory capabilities for the safe and stable operation of the power system. Moreover, as ancillary services are a public good, the principle of “who benefits, who bears” should be followed to ensure shared responsibility among all beneficiaries.
Additionally, establishing a pricing mechanism that guarantees predictable returns will enhance the utilization of new energy storage and support the healthy development of storage stations.
“Initially, the entry rules, settlement methods, and standards for station operation and settlement varied across regions, leading to higher construction and operational costs for early entrants like us,” Zhao Peng noted. He suggested optimizing the capacity settlement mechanism to provide targeted and reliable settlement policy support for different types of energy storage stations.
From a capacity compensation perspective, it is necessary to expedite the publication of regulations and implementation details for determining the capacity prices of new energy storage.
In the short term, referencing pumped hydro storage and coal-fired power, the capacity pricing mechanism for new energy storage should be refined to eliminate unfair competition among flexible resources. Industry insiders propose establishing a capacity price for new energy storage on the generation side, allowing large-scale storage to provide better capacity services and addressing issues such as peak-shaving, frequency regulation, and overvoltage from distributed photovoltaics.
In the long term, establishing a capacity market to effectively reflect the scarcity of capacity through market pricing mechanisms is essential. Experts recommend that relevant departments coordinate various capacity resources and create a pricing mechanism that ensures fair compensation for capacity costs, thereby promoting sustainable development of the new energy storage industry.
Currently, the new energy storage industry is transitioning from a focus on scale expansion to prioritizing quality and efficiency, shifting from policy-driven to market-led development. While the industry faces growing pains, it also harbors new opportunities for growth. In the long run, as electricity market reforms deepen, the market will accelerate the elimination of inefficient capacities, compelling enterprises to shift towards technology-driven and value-creating models, while innovations in market mechanisms will better support the high-quality development of the new energy storage sector.
