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| Author | Penny Liao |
| Updated | August 31, 2023 |
In China, C&I energy storage was not discussed as much as energy storage on the generation side due to its limited profitability, given cheaper electricity and a small peak-to-valley spread. In recent years, as China pursues carbon peak and carbon neutrality, provincial governments have introduced subsidies and other policy frameworks. Since July, as the country experienced peak electricity demand, more and more provinces have varied electricity charges for different seasons, expanding the peak-to-valley spread and fostering growth in the C&I energy storage sector.
Profitability assessment
The table below shows prices for C&I users with a consumption of 35-110 kW purchasing electricity from the State Grid Corporation of China (SGCC). According to the table, in July 2023, 24 regions saw the peak-to-valley spread exceed RMB 0.7/kWh. Among them, 90% experienced month-on-month increases, and 70% year-on-year increases, in their peak-to-valley spread, with Jiangxi Province witnessing the fastest year-on-year rise of 109 %. In the five cities of the Pearl River Delta of Guangdong, the peak price was RMB 1.49/kWh, and the trough price was RMB 0.289/kWh, meaning a peak-to-trough gap of RMB 1.2/kWh, making Guangdong the province of the largest peak-to-valley spread as of mid-2023. In the following paragraphs, InfoLink calculates the payback periods of peak-to-valley arbitrage for a 3 MW/6 MWh energy storage system charging and discharging once and twice a day, based on the average equipment cost of RMB 1.7/kWh in mid-2023 and a system efficiency of 85%.
Table 1. Spreads of purchasing electricity from the SGCC in Chinese provinces as of July 2023
Results and interpretation
Results of the assessment are as follows. As shown in the chart below, given a peak-to-valley spread as high as RMB 1.2/kWh, a C&I energy storage with one charge-discharge cycle a day in the five cities will need a payback period of eight to nine years. Provided the average spread is RMB 0.7/kWh, the project will not recoup investment within a decade. However, if charging and discharging twice a day, the payback period will shorten to four to five years or seven to eight years when the average spread is RMB 0.7/kWh. Thanks to a peak-to-valley spread twice the average, the five cities process a significant economic advantage.
C&I energy storage projects in China mainly profit from peak-valley arbitrage while reducing demand charges by monitoring the inverters’ power output in real time to prevent transformers of industrial parks from exceeding their capacity limits. As the peak-to-valley spread widened in summer, and more provinces introduced capacity subsidies and incentives, a potential boom of the Chinese C&I energy storage sector returned to the limelight.
While many enterprises are optimistic, InfoLink’s Global Lithium-Ion Battery Supply Chain Database 2023 shows China having 3 GWh of C&I energy storage demand, accounting for 7-8% of the country’s installed energy storage capacity, given uncertainties regarding manufacturing plant area, inverter space, price trend, and system safety. Statistics of InfoLink show China adding 1 GWh of C&I energy storage capacity in the first half of 2023, indicating an overheated market sentiment in comparison to actual demand. In the second half, the Chinese energy storage market still focuses on utility-scale energy storage and is expected to add 43 GW of capacity throughout the year. As for the C&I market, the business model remains dominant where energy service suppliers purchase energy storage systems, selling services to enterprises. They are more likely to invest in C&I energy storage systems in the future, when system costs decline along with cell price drops, and increasingly diverse business models emerge as the market matures.
