ESS in China: Supportive policy to accelerate market growth

Installed ESS capacity in China has grown every year, as the country pledges to achieve net-zero by 2026, and with installed renewable energy capacity continually increasing. In 2021, China saw over 2.3 GW of installed electrochemical ESS capacity, a 50% YoY increase. Among which, 40% was from the generation side, 35% from the grid side, and 25% the end user side.

Supportive policy framework is the major driver behind such increases. Many Chinese provinces have set energy storage targets since 2021. As shown in the graph below, some provinces will see nearly 100 GW of installed ESS capacity by 2025. More provincial governments introduced regulations for the generation side, the grid side, and the end user side. Until 2025, China’s energy storage industry is expected to see rapid expansions.

Fig. 1. ESS policy frameworks of Chinese provinces.
 

The generation side

Connected with renewables, the generation side is usually required to integrate certain ratio of energy storage capacity, with detailed regulation on ESS capacity.

Hunan Province, in the “Opinion on accelerating electrochemical energy storage development of Hunan Province,” mandated wind turbines and distributed PV to have ESS with at least 15% and 5% of its capacity and two hours of storage duration.

In Tianjin Province, PV system with more than 50 MW of power output shall be integrated with ESS with 10% of the capacity and at least one hour of consecutive storage duration, according to the “Notice of Issues Regarding 2021-2022 Wind and PV Project Development and 2021 Grid Dispatch Guarantees.”

In addition to requirement of integration, provincial governments offer subsidies for businesses achieving certain benchmark of energy storage. Authorities of Shanxi, Xi’an allocates RMB 1/kWh per month for solar-plus-storage systems entering operation during 2021 and 2023, starting from the following month of commissioning, with a RMB 500 thousand cap for one single system per year. The subsidy is only applicable to those using ESS approved by the Ministry of Industry and Information Technology (MIIT).

Fig. 2. Policies for grid-scale ESS of some Chinese provinces
 

Grid energy storage

Energy storage for grid applications serves for the electricity market and the stability of the grid. Therefore, subsidy for peak regulation and frequency control are the most common policies.

Shandong Province, for example, offers RMB 0.15/kWh of peak regulation subsidy and RMB 6/MW of AGC frequency control subsidy for ESS with at least 5 MW / 10 MWh of capacity. ESS receiving the subsidy cannot take part in any paid bid for peak regulation.

Capacity payment subsidy is the second most common policy on the grid side. Yunnan Province provides RMB 4/MW of subsidy for electricity generators losing the bid or undeployed, and RMB 5/MW for those winning the bid or deployed by the grid. There is a RMB 3-8/MW of cap for subsidy application based on regulation mileage.
 

End-user energy storage

End users profit through the time-of-day (ToD) tariff mechanism. Relevant policies remain scant in China, as the country focuses on the FTM market. For now, policies tend to provide subsidy for investors and constructors, whilst mandating the price for declaring subsidy.

In Northeast China, end-user ESS receive RMB 0.1-0.2/kWh of subsidy, on condition that they are subject to the supervision of provincial or higher power electricity dispatch institutions. The subsidized ESS must charge and discharge on demand and are not allowed to charge during peak hours or discharge during valley hours.
 

Other supportive policies

Besides policies tailored-made for each applications, supportive policies and the ToD tariff boost the development of energy storage industry.

Authorities of the Nanning City of Guangxi provides RMB 0.1/Wh of sales subsidy for locally registered battery makers, according to the “Supportive Policy for power and energy storage battery industry of Nanning City.” The subsidy is applicable to manufacturers with at least 55 GWh of production capacity and has a cap of RMB 11.550 billion.

Several other provinces increase the gap of ToD tariff. In Anhui, the increase of seasonal electricity rate during peak hours rises from 65% to 81.3%, and from 54% to 71% during peak hours in other months. The reduction of electricity rate during valley hours is adjusted from 42% to 58.5%.
 

Conclusion

As the development of renewables and ESS advances in China, energy storage policies of the country crystalize, with all provinces introduce relevant policies.

For the generation side, authorities regulate the percentage of ESS integrated with renewables. Presently, most provinces require renewables to have 10-20% of capacity integrated with ESS that have two to four hours of storage duration. InfoLink expects to see more grid-scale ESS policies designed for longer-duration energy storage and more detailed restrictions on battery cycle life, safety standards, and degradation.  

Policies for the grid side focus on peak regulation, frequency control, and capacity subsidy, which usually starts at a minimum of RMB 0.1/kWh. Authorities also set benchmarks. Only qualified ESS are allowed to participate in the ancillary service market.

Strongly bolstered by the Chinese government, FTM ESS secures 75% of domestic market share. The expanding difference between peak and valley prices also accelerates the development of energy storage in China.  

InfoLink has complied energy storage policies of over 20 Chinese provinces. Please refer to our ESS report for more details.