China’s goals announced this summer to boost cumulative installed non-pumped hydro energy storage to around 30GW by 2025 and 100GW by 2030, coupled with recent adoptions of time-of-use power tariffs that create a greater range between peak and off-peak power prices, are driving a boom in battery storage activity.
Energy storage will be crucial for China to peak its carbon emissions before 2030 and reach net zero by 2060. As more renewable power comes onto the grid, storage can help balance out the variability of sources such as wind and solar.
As of 2020, China only had approximately 3.3GW of energy storage outside of pumped hydro, with the latter bringing the cumulative total up to around 35GW, according to data from the China Energy Storage Alliance.
Despite challenges related to finding business models for companies producing and operating battery storage, the goals for 2025 and 2030 are likely to drive the market as state-owned enterprises aim to meet mandates being rolled out at the city and provincial level across China.
“We have seen a high level of activity on the policy front,” Megan Jenkins, a senior research analyst at IHS Markit in Beijing, told Energy Monitor. “We have seen more provinces beginning to issue their own storage deployment mandates for new-build renewables.”
Carbon neutrality goals are a key driver, including recent carbon-reduction strategy documents released by China’s State Council, the government's top decision-making body, Jenkins says. More detailed policies are expected in the coming months.
“Energy storage here [in the recent strategy documents] is listed as a key component of China’s low-carbon future,” she says.
Xu Le, a senior analyst on power and renewables at energy consultancy Wood Mackenzie in Singapore, told Energy Monitor that developers had already been moving ahead with projects before the goals were announced mid-summer, and the current boom should last through 2022, although it is less certain how energy storage will develop further out to 2025.
“There are many issues about who is going to pay for the assets and whether the market can really incentivise them,” Xu says.
Since revenue streams for the storage market are very different from solar and wind power, which have feed-in-tariffs, it will take time for those streams to mature as policies are rolled out and markets form more fully, she says.
Greater ranges in peak and off-peak energy prices will determine how profitable producing and installing storage systems is, as well as demand for them from end users, beyond mandates.
“I think the price volatility [between peak and off-peak prices] is still not enough for battery storage to enter [more fully], so that is why you see more hybrid projects that combine storage and renewables,” Xu says. “The cost benefit of developing battery storage is [still] pretty low. That is one of the barriers for the Chinese market compared to other, more liberalised power markets.”
Current guidelines for including storage capacity in renewable energy projects range from 5–20%, depending on the province. This is one market driver but not a long-term fix.
Other revenue streams could come from allowing battery owners to sell power on spot markets. Solar and wind operators have recently started being able to do this in certain areas. It is expected that battery operators will be able to do so too at some point down the line.
Riding the wave
Despite uncertainty over how the storage market will operate, how much electricity price volatility will be allowed and what revenue streams will be available, companies like Shenzhen Cubenergy, a maker of industrial battery systems, are currently all in.
“The market has been developing very fast,” Wang Jiannan, marketing director of Cubenergy, said during a visit to the company’s headquarters in Shenzhen’s main high-tech district of Nanshan. “In the past three months, and with the idea of [reaching net zero by] 2060, it has been very fast. Not just for China, but we are getting a lot of enquiries from Europe and the US, and some developing countries.”
Cubenergy is primarily involved in creating industrial-sized commercial battery storage projects, some linked with solar photovoltaic (PV) systems for onsite storage and use, others for PV systems that store and transfer power to other users. The biggest current driver of its business is commercial users of industrial batteries at the factory level, supplying power needs and energy cost savings for an individual factory.
Time-of-use pricing is helping companies like Cubenergy market their storage systems, so factories can cut down on their peak energy prices with stored energy, Wang says.
“It was hard to do energy storage business in China previously because the energy users didn’t understand and the government didn’t understand,” Wang says. “The floating [dynamic] energy prices are good for us because in the future there will be even larger differences. It won’t go back to the old model of fixed prices.”
Cities and provinces setting targets for non-pumped hydro storage are also helping drive the business. The battery systems Cubenergy develops are bought by companies to offer factories extra power when they need it, or to lower energy prices during peak hours. Factories that are mostly in less energy-intensive industries but would like to save on energy costs are the current target. Most batteries at the factory level are combined with rooftop solar projects, which are independently installed by other companies. Cubenergy integrates and monitors the systems as a whole, Wang says.
One of the current issues in the market is there are too many small competitors, which can create quality problems and a race to the bottom on prices, Wang adds.
“They just start and think that battery storage systems are very simple,” he explains. “We know that the low price is not good for the market.”
Accidents, such as a fire that killed two firefighters battling a blaze at a lithium-iron phosphate battery storage site in Beijing in March 2021, have increased government awareness of inferior quality and safety problems, he adds, so further standards may be forthcoming.
“We don’t currently see safety issues as a major concern in the market,” George Hilton, senior batteries and energy storage analyst for IHS Markit in London, told Energy Monitor. “It is likely that this would be felt most by investors becoming weary of what they perceive as increased risk in the sector.”
Most concerns currently revolve around the availability and reliability of market opportunities that would provide robust and profitable business models, Hilton says.
Material costs for all the minerals and materials needed to make the batteries also continue to be a factor, as do the high prices and availability of shipping containers that house the battery systems.
“One of the key barriers right now is the supply chain, and for the battery raw materials prices have increased dramatically in the past six months,” Xu says. Cobalt, lithium, nickel, copper and magnesium supplies are tight, and prices are high, and battery storage developers are competing with electric vehicle-makers for the same resources.
China’s recent energy crisis has also been helpful in terms of raising awareness about the needs of battery systems at the factory level, but in reality those storage systems would only be able to supplement energy use for production, not power an entire factory, particularly in more energy-intensive factories.
“Battery storage systems cannot be enough [to supply power needs during energy rationing],” Wang says.
Xu agrees there is more interest in battery systems coming out of the energy crisis, but technological limitations do not allow for such systems to be used as the primary source of energy in heavier industries like refining, which were among the hardest hit, she notes.
“The clear signal of the power crunch is that China wants to reach carbon neutrality, but the question is how they can really achieve the goal and how industrial users can proactively head in this direction,” Xu says.
China’s current energy crisis has in many ways accelerated the pace of China’s power market reform, Jenkins says. Provinces have been rolling out more market-oriented pricing structures.
“Any measure that exposes end users to more price volatility is a positive sign for encouraging storage deployments for demand-side energy management,” she says.
“On the power generation side, we have seen an uptick in renewable purchase price agreements,” Jenkins says. “In theory, any renewable price premium captured through these new renewable power purchase agreements could help encourage developers to install energy storage, but this is still early-stage, and we haven’t seen evidence of this happening yet.”
Since investors can be locked into spending on equipment for a decade or longer, many are trying to sort out what they actually need – whether that is battery storage, possibly hydrogen storage, or even carbon capture and storage to reduce carbon footprints.
One wild card in all of this is continued US-China geopolitical and trade tensions. With China making around three-quarters of the world’s batteries, the US would be at a disadvantage relying on these to reach its climate goals unless it ramps up domestic production.
“This creates a lot of uncertainty in the next five years,” Xu says. “I think after 2025 markets [for battery systems] will grow much faster.”
China’s target for 30GW of battery storage by 2025 can be seen relatively independently from trade tensions, Hilton counters. However, a worst-case scenario would mean China is able to meet its own domestic capacity needs at the very least.
“We could even see further efforts to stimulate domestic demand arise if external demand falls,” Hilton said.