China's pressing issues as solar-plus-storage booms

China's urgent need of improving ESS utilization on the generation side

On March 29, 2023, the National Platform for Safety Information Monitoring of Electrochemical Energy Storage Power Station, built by China Electricity Council with the approval of National Energy Administration, issued the “Electrochemical Energy Storage Power Station Industry Statistics 2022.” According to this report, by the end of 2022, 19 corporate members submitted 772 electrochemical energy storage power stations, each with at least a capacity of 500 kW/500 kWh. The total power of the stations was 18.59 GW, and the total capacity was 43.08 GWh. Among these, 472 stations are operating, accounting for 6.89 GW of power and 14.05 GWh of capacity.

On the generation side, the total energy storage capacity was about 6.80 GWh, not including 3.87 GWh of addition in 2022. A large portion of the total capacity was integrated with renewables and will be increasingly so, thanks to provincial policies. In 2022, the cumulative capacity of renewable-integrated ESS commissioned was 5.50 GWh, accounting for 80.80% of the total energy storage capacity on the generation side. The share rose to 85.29% when factoring in 3.30 GWh of addition within the year.

The scale and share of the installation suggest mandatory energy storage policy indeed boosted the renewable-integrated energy storage market. However, a closer look at the numbers reveals that the operation rate of renewable-storage integration is far lower than that of thermal-storage integration. The average service factor is 0.06, with 1.44 hours of average operating hours per day and 525 hours of average operating hours per year. The average utilization factor is 0.03, with 0.77 hours of utilization per day and 283 hours of utilization per year. The average reserve factor is 0.92, with 22.17 hours of reserve per day and 8,093 hours of reserve per year. The average output factor is 0.69, and the average daily utilization index is 17%, with 0.22 times of utilization per day.

The statistics reflect the market prosperity fostered by the mandatory energy storage policy. Yet, the problem of ESS being either unused or unusable is aggravating, as many integrate energy storage only to conform to the law. As a result, the value of energy storage is significantly reduced, preventing many developers from investing. At this stage, for energy storage projects in China, project owners find an IRR of 6% or higher more appealing.
 

Image: Electrochemical Energy Storage Power Station Industry Statistics 2022

Source: National Platform for Safety Information Monitoring of Electrochemical Energy Storage Power Station
 

Policy creates the market but shall adapt to its autonomous development

Undoubtedly, policy is the strongest driving force behind markets. In addition to policy, the world-leading renewable market of China underpins its energy storage market. To date, more than 25 provinces have announced policies regarding energy-storage integration, with their focus extending from centralized generation projects to distributed ones.

In 2022, ESS integrated with centralized renewable generation projects accounted for the largest share of the total installed energy storage capacity within the year. Nevertheless, behind the outstanding numbers lies the urgent problem of rising utilization efficiency.

China started advocating the energy-storage integration policy in 2021. In 2022, supply chain issues caused price hikes, pushing up project carrying cost. However, revenue did not increase. As a result, developers comply with the policy by fair means or foul, such as using lower-quality cells and settling for inferior efficiency and lifespan. To avoid bad money driving out good, InfoLink suggests more agile policymaking with constant adjustment in the following directions:

1. Whether or not to integrate ESS, the ratio of integration, and operating time shall depend on the generation source, application scenarios, geographic location, and system types.

2. Adjust the equipment subsidy and the service price according to local grid utilization conditions and the market price of equipment.

3. Authority shall establish comprehensive technology standards and regulations.

4. Diversify income sources. That is, increasing usage effectiveness, allowing the electricity market to be a free market.

The market, the corporations, and the governments must be on the same page to facilitate a fast and healthy growth of the industry. Over the past year, the market expanded rapidly, with many companies scrambling to enter the industry, but shortages of cells and key components occurred. In 2022, the industry delivered 140 GWh of cells for energy storage. The figure is expected to exceed 235 GWh, a 70% increase.

Besides the two leaders, CATL and BYD, other cell manufacturers like EVE Energy, Rept Battero Energy, and Hithium all make significant strides in the industry. Furthermore, China’s LFP battery may take up 95% of the world’s total energy storage shipment this year. These statistics highlight the rapid growth of the market and the fierce competition among manufacturers. Therefore, aligning policies with market demand and refining the execution system to address underlying challenges are essential for the long-term development of the industry.
 

Industry trends

Many business owners still mistakenly consider the operation of energy storage projects similar to that of PV and wind power projects, which are rather simple, generating and selling electricity depending on the weather or grid traffic. In fact, energy storage is far more complicated. It serves as a buffer and a distributor in the grid, inputting and outputting restlessly between the generation side and the end-user side, adjusting the power according to application scenarios while taking into consideration system lifespan, safety, and efficiency. Thus, energy storage has a crucial role in reforming the renewable energy grid.

While capacity and scale are important, the key lies in raising efficiency and creating effectiveness. Therefore, digitization and intellectualization are two inexorable trends. Intellectualization can best utilize the edge of the energy storage and optimize the power usage effectiveness, creating diverse and adaptable application scenarios. The increasing appearance of BMS, EMS, and AI-based energy solution suppliers in exhibitions and industry updates this year underscores the phenomenon, showing energy storage gaining traction on the end-user side. To ensure the steady growth of the rapidly expanding energy storage industry and facilitate the grid transition, authorities must build effective rapport with businesses whilst leading the industry forward.