By WANG Yong
The energy storage sector is heating up in China as the government feeds the industry with tasty new policies. Power companies from state-owned to giants to backyard startups are preparing to build storage banks.
In February, the National Standardization Management Committee and the National Energy Administration jointly issued guidelines proposing to revise or develop more than 100 key standards for new energy storage to support the safe and large-scale development of the new energy storage industry.
Nearly 30 provinces and cities have issued mandatory energy storage policies or development targets for energy storage during the "14th Five-Year Plan" period, the scale of energy storage construction in these regions will add up to nearly 54 GW by 2025.
CAI Zhongquan, managing partner for energy and natural resources at KPMG China, and KANG Yong, chief economist, spoke to Jiemian News on the topic.
Jiemian News: How has the new mandatory energy storage affected business?
Cai Zhongquan: The mandatory storage policy for new energy is the main driving force behind the development of storage on the generating side. But when the cost of storage is borne by generators, they are inclined to choose low-cost storage projects and ignore performance and safety issues.
The typical gross profit margin in the new energy storage industry chain is rarely more than 30 percent, and the profit of many listed energy storage companies is falling.
Without the new standards, low-cost, low-performance storage will create safety issues and damage the industry.
Jiemian News: How to balance the issue of energy storage and economy?
Cai Zhongquan: The efficiency of new energy storage is not yet significant. The electricity market mechanism is not mature, and the participation of new energy storage is still being explored.
Use of new energy storage is low, only around 6 percent, which is the lowest use in the electrochemical energy storage industry.
Jiemian News: The cost of energy storage is high and it is difficult to transmit to the user side. How do we solve this problem?
Cai Zhongquan: The benefits of energy storage on the grid side, such as peak shaving and frequency regulation, are not obvious to the customer and the costs are very difficult to pass on.
The technology needs to meet requirements such as large capacity, high efficiency, and long lifespan. Fluctuations in power supply and uncertain demand increase costs and risks. This makes it very expensive tech indeed, with high R&D costs, followed by high manufacturing costs.
For now, that’s all paid on the grid side because electricity prices are determined by policies and other factors. Without wholesale changes to the pricing system, energy storage costs cannot be directly transmitted to the user side by raising prices.
The power grid side needs to develop and expand sources of income. Capacity cost - equipment and construction costs – need to be paid by someone. By sharing costs with customers, projects can be sure of some income through electricity sales.
Jiemian News: What is your opinion on the shared energy storage model? What are the issues with profitability and costs?
Kang Yong: Shared storage takes resources from the grid side, power side, and user side. Storage stations across the grid serve all new energy stations within the network. Independent storage stations are typically understood within the industry as being shared.
The revenue channels for independent storage stations include capacity leasing, sales of electricity, spot trading and others. These channels have not been widely promoted. Circumstances dictate the best mix for each business.
Revenue models in different provinces and cities vary according to market rules and the characteristics of the storage itself. In most cases, storage operators have to choose how they plan to make their money – all revenue channels do not operate everywhere, all of the time.
The government wants more shared storage to be traded. With increasing renewable energy, the profit space for energy storage will increase along with it.
Jiemian News: What is your outlook on the market in 2023?
Kang Yong: Driven by demand, policy, and capital, energy storage has entered the fast lane and should grow very quickly this year.
The need for stability and reliability of the supply are becoming more obvious every year. Government support will only increase, including subsidies and funding for research and development.
But storage systems can only improve the quality of supply, not the quantity. But as an emergency backup when the system fails, storage sites will do a lot to make a safer and more stable grid.
Energy storage is big in the capital market, especially electrochemical storage. Mature technology borrowed from the EV industry means relatively low costs, and risks. It is attracting a large amount of capital.
In the short term, we need to deal with the single revenue model and improve the safety of storage systems.
Jiemian News: Can storage take over from EVs and become the main force in the field?
Kang Yong: Batteries can be part of power stations, connected to the grid or serve owners’ direct power needs.
Batteries – and everything involved in making batteries - will be central to whatever happens next. However, for batteries to become the new incremental mainstay of the market, more research needs to be done and more applications explored.
There needs to be technological innovation to improve efficiency and extend storage time. The cost of storage is one of the factors that restrict its use. For lithium-based storage, spending on batteries comes close to 90 percent of all costs.
EV batteries have been the main growth point, but large-scale energy storage is still in the early stages of its development. Demand is still small.
