This spring, Zhang Yao has spent much of his time traveling for business. As the head of a medium-sized energy storage company in China, he participated in the 15th China International Energy Storage Conference held last month in Hangzhou and subsequently visited over a dozen clients in the Yangtze River Delta and Beijing-Tianjin-Hebei regions. “The hype and bubble in the energy storage industry are rapidly dissipating; everyone is returning to a very rational market logic. Whether customers buy now depends entirely on how much value energy storage can create for them,” Zhang stated.
Recently, the National Development and Reform Commission and the National Energy Administration issued a notice regarding the reform of the on-grid electricity price for new energy, which clearly states that "energy storage configuration must not be a prerequisite for the approval, grid connection, or on-grid electricity of new energy projects." This is seen as a sign marking the end of the era of mandatory energy storage policies in the country.
For Zhang and his peers, the increasing caution and selectivity of customers signify the beginning of a competitive race that could determine the survival of energy storage companies. According to reports from brokerage firms, this policy is expected to guide the industry from a "cost-first" approach to one focused on "value creation," marking a turning point for many energy storage companies struggling with losses. However, the reality is more complex. Despite many energy storage manufacturers lamenting that mandatory energy storage has led to unhealthy price competition, it is undeniable that such policies have been a significant driving force behind the rapid annual increase in new large-scale energy storage installations in the country.
While some energy storage firms have yet to fully adapt to the recent market reforms, a new wave of opportunities is emerging. Industry insiders indicate that under the new policy, the holders of energy storage systems are becoming increasingly diverse. The entry of more varied investors is bolstering the confidence of several energy storage companies to expand production.
During a recent energy storage expo, Lei Wu, a senior executive of a supplier specializing in energy storage temperature control, noted a marked contrast in attendance. “In previous years, there weren’t enough seats, and I had to stand in the back for two hours. This year, however, many seats were empty. Upon asking my peers, I learned that many people didn't attend; some companies cut travel budgets and did not send representatives this year.” Several industry professionals told reporters that the "downgrade in consumption" among some energy storage manufacturers and supply chain companies is partly due to the cumulative pressure from earlier price competition, coupled with a recent wait-and-see attitude in the large-scale energy storage market.
“After the policy adjustment, energy storage is no longer a necessary requirement for new energy development; it is now planned based on actual needs by investors. Currently, the acceptance capacity of wind and solar energy in local power grids has largely reached its limit, leading to increased uncertainty in returns after the full market entry of new energy sources. This has slowed down project investment and development. Furthermore, considering the high investment costs and uncertain cost recovery of energy storage, the initiative for energy storage on the new energy generation side is lacking, resulting in a general wait-and-see attitude and a decrease in short-term market demand,” analyzed Liu Yong, Secretary-General of the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association.
In fact, following the introduction of the new policy, not only has the market demand for energy storage in new energy stations decreased, but the investment in independent energy storage has also been affected. Unlike energy storage built for self-use on the new energy generation side, independent energy storage is typically constructed by third-party investors who can connect to the grid as independent entities and participate in the electricity market. Theoretically, its revenue sources are diverse, including long-term markets, spot markets, auxiliary service markets, and capacity mechanisms. However, in practice, due to slow provincial-level power market development and the trading and operational capabilities of energy storage stations, the first three markets have not been significant revenue sources for independent energy storage.
Widespread across the country, independent energy storage revenue heavily relies on capacity leasing. Liu Yong indicated that in provinces such as Shandong, Gansu, and Hunan, leasing revenues accounted for 40 to 60 percent of total income. Following the cancellation of the mandatory energy storage policy, the capacity leasing market is inevitably impacted, as new energy stations no longer need to lease independent energy storage capacity to obtain grid connection indicators, leading to reduced revenues for some independent energy storage stations and a decline in investment enthusiasm. As downstream demand contracts, energy storage companies find their orders dwindling.
However, it is worth noting that a new turning point is brewing. Many industry practitioners believe that both independent energy storage and energy storage linked to new energy still possess significant value potential, albeit needing a more favorable policy environment and refined operational management. “Our sense is that after the exit of the mandatory energy storage policy, the holders of energy storage systems are becoming increasingly diverse. Previously, the primary demand for energy storage came from state-owned power generation groups aiming to meet grid connection conditions, often prioritizing cost without necessarily utilizing the installed capacity. Now, many private enterprises are entering the energy storage investment field, aiming to gain benefits by participating in the electricity market, thus placing greater emphasis on the cost-effectiveness of products,” said Gao Xiubing, Executive President of Nandu Power.
This change is significantly backed by recent advances in several provincial power markets, which are accelerating their development and gradually introducing capacity compensation policies. For instance, Inner Mongolia recently released a notice to expedite the construction of new energy storage, proposing compensation for the discharge from independent new energy storage stations integrated into the regional planning, with a set compensation rate of 0.35 yuan per kilowatt-hour for 2025, effective for ten years. According to officials from the Inner Mongolia Energy Bureau, this compensation standard is the highest in the country and covers the entire operational cycle of electrochemical energy storage stations, effectively enhancing the willingness of project owners to invest in construction.
“The previously driven independent energy storage leasing model also has flaws. Many new energy stations, having signed leasing agreements to connect to the grid, lack motivation to renew these contracts once the connection is established. Since this model is unsustainable, the asset return period for independent energy storage stations may become indefinitely prolonged. Now, many independent energy storage stations are reducing their reliance on policies and shifting towards obtaining diverse revenue streams: securing long-term rental agreements with electricity consumers, deeply engaging in the electricity market by combining auxiliary services and benefiting from peak-valley price differences, as well as receiving government capacity compensation. This approach makes the economic calculations feasible and establishes a long-term sustainable development model,” Gao stated.
Under the new policy, the restructured investment returns for energy storage stations have drawn keen attention across the supply chain. Ni Tong, Chairman of Xi'an New Ai Electric Technology Co., also observed similar phenomena: while some investors are “withdrawing,” others are “waiting,” and yet others are “entering.” “To some extent, we are currently in a policy vacuum period; with the previous capacity leasing model disrupted, many areas have yet to introduce supportive policies that provide a basis for clarifying the revenue models of energy storage. Some investors are waiting for this period to pass, hoping for stronger policy signals. Meanwhile, some investors, particularly private capital, are actively seeking and seizing independent energy storage resources. They sense that once policies enhance the certainty of energy storage revenues, the barriers to investing in energy storage stations will rise. After all, independent energy storage stations are built at critical nodes of the power grid, making their resources and land limited, thus valuable for project development rights,” Ni noted.
The entry of more diverse investors has stabilized the confidence of some energy storage manufacturers to expand production. Ni believes the investment and installation scales in the energy storage sector will continue to grow, which is inevitable; however, the pressing question for energy storage companies is whether they can stand out in this environment. “In the future, the synergistic relationship between energy storage and new energy generation will manifest a balance through price signals in the electricity spot market. Moving forward, the cost of generating new energy will inevitably decrease, as will the costs of electricity and adjustments, but market scale will increase exponentially. Those who choose the right technological path and master advanced productivity will rapidly grow alongside this market,” he explained.
In line with this industry consensus, domestic energy storage manufacturers have not halted their efforts in product research and development. Recently, various energy storage companies have launched several new products, intensifying competition in the large-capacity battery space. While the 314Ah (amp-hour) cells have established a dominant position, companies are also aiming for the future market with cells exceeding 600Ah, and some are strategically positioning themselves between the two to seize opportunities. Additionally, the adaptability of product technologies to various scenarios has strengthened, with high temperature resistance, long lifespan, and safety becoming core selling points.
Not only is innovation evident in new product launches, but manufacturers are also showing significant commitment to a new wave of capacity expansion. Since the beginning of this year, multiple energy storage and cell companies have announced ongoing capacity expansion projects. According to incomplete statistics from reporters, companies including CATL, EVE Energy, Envision Energy, Yunda Co., Ruipu Lanjun, Penghui Energy, and Nandu Power have all "officially announced" progress in their capacity construction projects, with a total scale exceeding 120GWh (gigawatt-hours).
In a phase of structural oversupply in the energy storage industry, some external observers have expressed concerns about whether such expansion is rational and whether it will exacerbate cutthroat competition within the sector. In response, Gao Xiubing stated in an interview that a significant portion of the capacity that supported the rapid growth of new energy storage installations in recent years came from shared production lines for automotive batteries, primarily those under 280Ah. Currently, the capacity demands for storage batteries and power batteries have reached a differentiation point, and the new capacity being built is primarily driven by the growing demand for large-capacity cells dedicated to energy storage, representing advanced capacity and a rational approach to replacing outdated energy storage capacity to meet growing demand.
“Regulations on capacity expansion in various regions are becoming increasingly stringent. Previously, obtaining production capacity only required environmental assessments, but now factors for controlling new capacity are also being considered. Therefore, the impact of this round of expansion on lithium battery prices should be manageable. Moreover, battery cells are just one component of energy storage products; the competitiveness of system integration is also crucial. Hence, we will not blindly over-invest in battery cells, reserving part of our capacity to decide the pace of technological upgrades and expansions based on future order conditions and industry supply-demand dynamics,” Gao emphasized.
Statistics from the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association show that in 2024, China's newly added energy storage installations are projected to reach 42GW/110GWh, accounting for over 60% of the global newly installed capacity, with year-on-year growth of 99% (in power) and 130% (in capacity). Ni noted that energy storage installations experienced rapid growth during the first four years of the 14th Five-Year Plan, with annual growth rates reaching double or even triple digits, yet this still falls far short of the pace of capital entering the sector. Almost every manufacturing link surrounding the energy storage race is crowded with investors. After this round of supply-side expansion, market investment enthusiasm is cooling. In the absence of new transformative productivity, companies will need to adapt to this changing financing environment, while for energy storage companies with advanced technologies, cautious capital entry is also a form of protection. At this stage, energy storage companies must earn profits by providing valuable services to customers, marking a new test for the industry.
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