Since 2022, China has emerged as the global leader in the energy storage market. Currently, there is a noticeable surge in demand for both Commercial and Industrial (C&I) energy storage as well as utility-scale storage in China, with their respective shares steadily on the rise.
Reflecting on the developments in 2023, China witnessed a remarkable uptick in new energy storage installations, reaching an impressive 13.1 gigawatts and 27.1 gigawatt-hours from January to October. This surge significantly surpasses the figures from the same period in the preceding year. The substantial increase is primarily attributed to the successful grid connection of 630 projects, propelling installations in the second and third quarters to surpass those in the first quarter. Specifically, Q2 saw installations totaling 5.8 gigawatts and 12.3 gigawatt-hours, while Q3 recorded 4.2 gigawatts and 8.5 gigawatt-hours. Anticipating a continued momentum, Q4 is poised to establish a new record high for quarterly installations, driven by the grid connections anticipated at the year-end.
Outlook for Energy Storage Installations in 2024
Looking ahead to 2024, TrendForce anticipates a robust growth in China's new energy storage installations, projecting a substantial increase to 29.2 gigawatts and 66.3 gigawatt-hours. This marks a remarkable surge of approximately 46% and 50% year-on-year, indicative of a period of high growth.
In the realm of Commercial and Industrial (C&I) storage, the ongoing reforms in the power sector, coupled with an expanding gap between peak and off-peak power prices, contribute to a steady and escalating power demand in the C&I sector. Consequently, the economic viability of C&I energy storage is pronounced, and a notable uptick in C&I Energy Storage Systems (ESS) installations is anticipated.
Concerning utility-scale energy storage, there is a pressing need for its deployment. Additionally, the crucial role played by grid-side energy storage installations, dominated by standalone and shared energy storage, is expected to be a significant driver for the growth of utility-scale storage.
Projections for New Installations of ESS in 2024
Currently, the domestic energy storage industry in China is rapidly moving towards commercialization, with several local governments setting clear goals for installed capacity and putting in more efforts to promote installation. Furthermore, the sustained growth in the demand for utility-scale Energy Storage Systems (ESS), driven by challenges in the consumption of wind and solar energy, is noteworthy. TrendForce predicts that China's new utility-scale installations could reach 24.8 gigawatts and 55 gigawatt-hours in 2024.
In the first half of 2023, the domestic energy storage sector experienced a boost, propelled by the continued expansion of wind and solar power installations and a decline in energy storage battery cell prices. During this period, domestic energy storage installations reached 7.59 gigawatts and 15.59 gigawatt-hours, surpassing the levels observed in 2022. Market statistics for the first half of 2023 reveal that mandated installations of renewable energy and standalone energy storage accounted for 32% and 64% of the total installations, respectively. However, installations dedicated to frequency regulation constituted only 1%, while Commercial and Industrial (C&I) installations comprised just 3%. Clearly, the predominant types of energy storage installations in China at present are still mandated installations for renewable energy and standalone energy storage.
The primary driver behind the surge in domestic energy storage installations is the mandatory installation requirements. Currently, the demand for energy storage installations in the country is predominantly influenced by policies. Specifically, local governments mandate the adoption of new energy storage installations, while the State-owned Assets Supervision and Administration Commission (SASAC) stipulates that the nation's top five power utilities, recognized as the largest globally, must achieve a minimum of 50% renewable energy capacity by 2025. Consequently, policy directives play a pivotal role in propelling the domestic installations of Energy Storage Systems (ESS) in the FTM market.
The bidding capacity continues to rise, and winning prices have seen a significant reduction due to various factors. As of December 2023, the bidding capacity for domestic ESS and Engineering, Procurement, and Construction (EPC), inclusive of several framework purchasing agreements, has reached 37.9 gigawatts and 93.9 gigawatt-hours, surpassing the figures from the previous year. Regarding prices, the bidding unit prices for domestic ESS and EPC have been on a downward trajectory, influenced by decreasing raw material costs, premature business models, and intense industry competition. As of December 2023, the bidding unit prices for ESS and EPC stand at 0.77 yuan per watt-hour and 1.45 yuan per watt-hour, respectively.
In certain regions, standalone Energy Storage System (ESS) power plants are already yielding returns.
Currently, there is anticipation for significant breakthroughs in the profit mechanism of energy storage power stations. While standalone energy storage power stations in some areas can generate profits, the cost of obtaining income through leading capacity is essentially shouldered by the owners rather than the end beneficiaries. This implies that the constructor of the energy storage power station needs to absorb the cost, while the users reap the benefits. However, in regions such as Ningxia, Guangdong, Xinjiang, Guangxi, and others, where efforts are underway to incorporate the construction costs of standalone ESS power plants into the transmission and distribution prices, the domestic energy storage business model is expected to mature more rapidly.
Commercial and Industrial Energy Storage Systems (C&I ESS) are poised to play a pivotal role in domestic energy storage installations.
The revenue mechanism for industrial and commercial energy storage is diverse. Numerous provinces, including Anhui, Guangdong, Hunan, Jiangsu, Zhejiang, and others, have implemented subsidy policies for C&I energy storage, with these subsidies expected to spur short-term installations of C&I ESS. In terms of economics, the revenue model for C&I ESS power plants encompasses peak and valley arbitrage, demand management, and more. With an established business model and decreasing costs of Energy Storage Systems, the advancement of C&I ESS power plants is expected to accelerate.
The C&I ESS business model is gradually becoming clearer and more mature. Currently, the predominant C&I ESS projects involve owner investment, Energy Management Contracting (EMC), and financial leasing, with EMC being the primary method. EMC involves attracting investors to collaborate with power station owners, who then outsource energy through EMC contracts and share profits with investors. This approach enables a reduction in investment costs while promoting energy savings.
C&I ESS power plants in regions with a well-developed commercial and industrial sector, such as Zhejiang and Guangdong, demonstrate significant economic viability. Similarly, provinces like Jiangsu and Shanghai, which boast relatively advanced industrial and commercial activities, also witness substantial economic benefits in C&I ESS. Furthermore, the growing disparity in peak and off-peak prices is expected to further augment the marginal economic advantages of C&I ESS power stations.
Looking at the medium and long term, the expansion of the power spot market is anticipated to bring even more profits to C&I ESS power plants. Take the power spot market in Shandong as an example, where during the flourishing period of the distributed PV industry, negative tariffs have been observed. This means that C&I ESS users can leverage arbitrage opportunities in the power spot market to maximize profits. Consequently, as domestic distributed photovoltaic continues to flourish and the power spot market gains traction, C&I ESS has the potential to address distributed PV consumption, and its yield rate in the power spot market is expected to further improve. As a result, installations are likely to grow and become more sustainable.
In conclusion, amid the accelerating energy transition in many countries, energy storage holds a crucial strategic position, and its significance and necessity are unquestionable.