In recent years, new energy storage technologies (excluding pumped hydro), led by electrochemical energy storage, have entered the global spotlight. According to public industry data, newly installed capacity of energy storage projects in China soared to 16.5GW in 2022, of which installation of new energy storage projects hit a record high of 7.3GW/15.9GWh. The explosive growth of the energy storage market in China has contributed to favourable government policies and regulations. Our analysis of a series of government policies and regulations introduced over the past few years shows that, from central to local governments, policies are being rolled out to support and drive the development of new energy storage markets. These cover all application scenarios, from front-of-the-meter (FTM), which consists of power generation to the grid, to behind-the-meter (BTM), which includes commercial and industrial use cases.

Central government sets the pace for booming new energy storage market

In July 2021, the National Energy Administration and the National Development and Reform Commission issued their “Guiding Opinions on Accelerating the Development of New Energy Storage”, which for the first time declared the long-term development goal of China’s new energy storage market – to achieve large-scale installation (installed capacity of more than 30 million kilowatts) for new energy storage by 2025 and full market-oriented development by 2030. This marked the start of policy-driven market development for new energy storage in China.

At Interact Analysis, we sorted through a variety of policies issued by the central government, which can be roughly divided into the following four categories aimed at promoting sustainable long-term development of the new energy storage industry.

Of these categories, the industry development roadmap is the key. Central government vigorously promotes the adoption of energy storage facilities in various application scenarios, laying the foundation for industry development on a large scale. Furthermore, energy storage is able to participate in China’s electricity market^[1].

Local government policies are adapted to local conditions

Following the roadmap for energy storage industry development outlined by central government, local governments have issued regional planning and implementation rules one after another. These are intended to support and guide the development of the energy storage market according to the local conditions and situation.

Due to differences in local energy resource and demand for energy storage, policies and regulations rolled out by local governments demonstrate obvious regional characteristics. For example, local authorities in northwest and northern China (areas rich in renewable resources such as solar photovoltaic and wind power) have issued a series of policies relating to energy storage installation combined with renewable technologies. The southwest region (areas such as Sichuan and Chongqing) have been facing a continuous increase in electricity consumption in recent years, so a number of BTM commercial and industrial energy storage policies were introduced as important measures to solve the problem of local power supply. Meanwhile, in the Eastern China region, where installed renewable energy capacity continues to rise and electricity demand is huge due to the dense population and massive industrial activities, wide-ranging energy storage policies involving both FTM and BTM application scenarios have been introduced by local governments in recent years. The figure below shows the new energy storage installation goals for 2025 issued by provinces and municipalities across the country (installation data for Jilin and Hunan provinces is pumped hydro storage).

In addition, from the timeline of policies being released and implemented, local energy storage policies were initially concentrated on FTM power generation, combining energy storage with renewable energy power generation into the grid to reduce the curtailment of wind and solar energy. Northern provinces with abundant renewable energy resources pioneered deployment of FTM energy storage installations. In 2020 and 2021, Inner Mongolia, Ningxia, Gansu, Hebei and a number of other areas issued a series of relevant new energy storage policies^[2].

Different policy focuses for FTM and BTM application scenarios

FTM Power Generation: Renewable Energy + Energy Storage

Local governments require or encourage deployment of energy storage systems while developing renewable energy power generation projects. Four measures are adopted as below:

• Compulsory allocation – energy storage is mandated for building renewable energy power generation projects^[3].
• Encouragement – measures designed to encourage deployment of energy storage facilities for renewable energy power generation projects.^[4]
• Approval bias – renewable energy power generation projects with energy storage given priority for connecting to the power grid^[5].
• Incentives – fiscal incentives such as subsidies for owners of renewable energy power generation projects with energy storage^[6].

 

FTM Grid Scale: Focus on the Ancillary Service Market

Local governments implemented a series of policies and regulations to develop the ancillary service market for energy storage.

• Most local governments have accepted energy storage as playing a part in the regional ancillary service market. In addition, detailed measures such as service coverage, technical specifications, grid peak regulation and frequency regulation compensation standards have been rolled out^[7].
• Some local governments diversified ancillary services to expand the scope of energy storage facilities, such as voltage regulation, primary and secondary frequency control, etc^[8]
• Fiscal incentives or subsidies are provided for power grid companies with energy storage facilities^[9].

 

BTM Commercial and Industrial: Peak-to-Valley Price Difference + Subsidies

Local governments mainly take steps to widen the peak-valley price difference and provide subsidies to stimulate energy storage deployments in commercial and industrial scenarios.

• Central government attempts to widen the peak-to-valley price gap by setting the time-of-use electricity price system and the peak electricity price system in order to stimulate energy storage adoption in industrial and commercial scenarios as users look to save money.
• Local governments proactively take various measures – such as time-of-use electricity prices, preferential electricity prices and fiscal subsidies – to attract market participation in the commercial and industrial energy storage market^[10].
• It is worth mentioning that, unlike the surge in residential energy storage in oversea markets, low household utility prices, stable power supply systems, and a range of other factors in China, mean that energy storage in the BTM residential market is not necessary and economical, and therefore development in this sector is very slow.

The future development of China’s energy storage policies

At present, China’s energy storage market is in its infancy and highly dependent on strong government support and guidance. In the next three to five years, policies and regulations will continue playing a crucial role in the development of the market. While the focus of policy implementation may shift as the market develops, in terms of application scenarios while policies remain in place to expand installation of new energy storage integrated with renewable technologies, policy implementation may be more inclined to FTM grid (distribution and transmission) and BTM (industrial and commercial applications), attracting companies to enter the energy storage market and explore business models. Furthermore, government policies will continue to encourage diversification of technological routes for energy storage, differing for various application scenarios and regions.

From the medium and long term development goals of the new energy storage market, we believe the industry will gradually shift from being policy-driven to becoming market-driven during the “15th Five-Year Plan” period. Government subsidies may be gradually withdrawn, and, instead, government policies and industry regulations will promote commercialization of the market, and improve industry and technological standards, ensuring a thriving and sustainable energy storage market in the future.

For more information on the energy storage market, please contact Shirly Zhu, Principal Analyst at Interact Analysis. Interested in our new research report on the topic, due end of this year? Download the brochure here.

 

[1]In 2022, the National Development and Reform Commission and the National Energy Administration issued the “14th Five-Year Plan New Energy Storage Development Implementation Plan”.

[2]For example, in May 2020, Inner Mongolia Autonomous Region issued the “Competitive Allocation Plan for Solar Photovoltaic Power Generation Project in 2020”.

[3]e.g. Hubei Province “Notice on Carrying out the Competitive Allocation of Affordable Wind Power and Affordable Photovoltaic Power Generation Projects in 2020” released in June 2020.

[4]For instance,  Liaoning Province’s “2022 Photovoltaic Power Generation Demonstration Project Construction Plan” released in May 2022.

[5]e.g. Anhui Province’s “Notice on Carrying out the Competitive Allocation of the Grid-Connected Scale of the First Batch of Sub-wind Power and Photovoltaic Power Generation Projects in 2022”, released in April 2022.

[6]An example is Qinghai Province’s “Notice on Printing and Distributing Several Measures to Support the Development of Energy Storage Industry (Trial)”, released in January 2021.

[7]In July 2021, the National Development and Reform Commission issued “the Notice on Further Improving the Time-of-Use Electricity Pricing Mechanism”

[8]For example, in July 2022, Shandong Province issued the “Notice on Soliciting Opinions on Six Normative Documents”, including the “Implementation Rules for the Grid-Connected Operation Management of Power Plants in Shandong Province (2022 Revision)”.

[9]e.g. In December 2022, Chongqing issued the ” Eight measures for Tongliang District to support the development of new energy storage (trial)”)

[10]In September 2022, Yongkang Municipal Government issued “the Notice on Printing and Distributing the Pilot Implementation Plan for the Development of Rooftop Distributed Photovoltaic in the City”