This spring, Zhang Yao, a business leader at a medium-sized energy storage company in China, spent much of his time traveling for work. After attending the 15th China International Energy Storage Conference in Hangzhou last month, he quickly visited over ten clients in the Yangtze River Delta and Beijing-Tianjin-Hebei regions. “The hype and bubbles in the energy storage industry are rapidly dissipating. Now, purchasing decisions depend entirely on the value energy storage can create for customers,” Zhang noted.
Recently, the National Development and Reform Commission and the National Energy Administration issued a notice regarding the deepening of the market-oriented reform of renewable electricity prices to promote high-quality development in the sector. This document explicitly states that “the configuration of energy storage shall not be a prerequisite for the approval, grid connection, or market access of new renewable energy projects.” This marks the end of the era of mandatory energy storage policies in China.
For Zhang and his peers, the increasing caution and selectiveness of customers signals the beginning of a competitive race crucial to the survival of energy storage manufacturers. According to reports from securities firms, this policy change is seen as a shift from a “cost-prioritized” approach to one focused on “value creation,” representing a turning point for many energy storage companies struggling with losses.
However, the reality is more complex. Despite years of losses, many energy storage companies have maintained that “mandatory energy storage is the root of low-price competition.” Nonetheless, it is undeniable that such policies have been key drivers in the significant year-on-year increase of new large-scale energy storage installations in the country.
Some energy storage manufacturers are still adapting to the dizzying effects of market reforms, but new opportunities are emerging. Industry insiders suggest that under the new policies, the ownership of energy storage systems is becoming more diversified, while the entry of a wider range of investors boosts some manufacturers' confidence in expanding production.
During a recent energy storage expo, Lei Wu, a senior executive from a temperature control supplier, noted a stark contrast to previous years. “Just two years ago, there weren’t enough seats, and I had to stand at the back for two hours. This year, many seats were empty, and I learned from colleagues that many companies chose not to send representatives due to budget cuts on travel.”
Multiple industry professionals indicated that the “downgrade in consumption” among some energy storage manufacturers and supply chain companies is partly due to the accumulated pressure from earlier low-price competition, compounded by the current short-term market hesitation regarding large-scale energy storage.
“After the policy adjustment, energy storage is no longer a necessary condition for renewable energy construction but is planned based on actual investor needs. At present, the capacity for wind and solar energy integration in various regional power grids has basically reached its limits, increasing the uncertainty of revenue once renewable energy is fully marketized. Consequently, investment and development speeds are slowing down,” said Liu Yong, Secretary-General of the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association.
In fact, after the new policies were implemented, not only did the market demand for energy storage in renewable energy projects shrink, but investments in independent energy storage systems were also affected. Unlike self-built energy storage linked to renewable generation, independent energy storage systems are usually developed by third parties, allowing them to connect to the grid and participate in electricity market transactions independently.
Theoretically, their revenue sources are diverse, including long-term markets, spot markets, ancillary service markets, and capacity mechanisms. However, in practice, due to slow provincial-level power market development and the limited trading and operational capabilities of energy storage stations, the first three markets have long been secondary income sources for independent energy storage.
Across the country, it is common for energy storage station revenues to heavily depend on capacity leasing. Liu Yong reported that in provinces like Shandong, Gansu, and Hunan, leasing income constituted as much as 40 to 60 percent of overall revenue. Following the cancellation of mandatory energy storage policies, the capacity leasing market is inevitably impacted as renewable energy stations no longer need to lease independent energy storage capacity to meet grid connection criteria, leading to decreased revenues for some independent energy storage stations and a subsequent decline in investment enthusiasm.
As downstream demand contracts, energy storage manufacturers are receiving fewer orders. Nevertheless, it is worth noting that new turning points are emerging. Many professionals believe that both independent energy storage and renewable energy integration still present valuable opportunities, albeit requiring a more favorable policy environment and refined operational management.
“We feel that following the exit of mandatory energy storage policies, the ownership of energy storage systems is becoming increasingly diversified. Previously, the main investors were state-owned power generation groups primarily aiming to meet grid connection conditions, often prioritizing cost over actual usage. Now, many private enterprises are entering the energy storage investment field, focusing instead on market participation to achieve returns, hence placing greater importance on cost-effectiveness,” said Gao Xiubing, Executive President of Nandu Power.
This shift is occurring against the backdrop of accelerating reforms in power markets across various provinces, with capacity compensation policies being progressively implemented. For instance, Inner Mongolia issued a notice in April to accelerate the development of new storage technologies, proposing compensation for the discharge volume from independent new energy storage stations included in regional planning, with a standardized compensation of 0.35 yuan/kWh for the year 2025, extending over a decade.
A representative from Inner Mongolia’s Energy Bureau explained that their capacity compensation represents the highest national standard and the longest duration, effectively incentivizing project owners to pursue construction.
“The independent energy storage leasing model driven by mandatory policies had its drawbacks. For example, many renewable energy stations entered leasing agreements solely to connect to the grid, lacking motivation to renew contracts post-connection. Since this model is unsustainable, the asset return cycle for independent energy storage stations could be indefinitely prolonged. Now, many independent energy storage systems are reducing their policy dependence, shifting towards multiple revenue streams: securing long-term rental agreements with electricity consumers, deeply engaging in the electricity market with ancillary services and peak-valley price arbitrage, and benefiting from government-provided capacity compensation. This way, the economic equation becomes viable, paving the way for a sustainable long-term development model,” Gao Xiubing added.
As the new policies reshape investment returns for energy storage stations, attention is closely focused on the entire supply chain. Ni Tong, Chairman of Xi'an New Ai Electric Technology Co., also observed similar trends: in downstream investments, some are “withdrawing,” others are “observing,” while some are “rushing in.” “In a way, we are in a policy vacuum period. After the traditional capacity leasing model was disrupted, many regions have yet to introduce supportive policies that clarify energy storage revenue models. Some investors are waiting to navigate through this period, hoping for stronger policy signals, while others, particularly private capital, are actively seeking and securing independent energy storage resources. They anticipate that as policy certainty regarding energy storage revenue increases, the entry barriers for investment in energy storage stations will rise. After all, independent energy storage stations are located at critical points in the grid, making their resources and land limited, thus making project development rights highly valuable,” Ni Tong stated.
The influx of diverse investors has stabilized some energy storage manufacturers' confidence in expanding production. According to Ni, investments and installed capacities in the energy storage sector are expected to continue to grow, which is indisputable; however, the more pressing question for energy storage companies is whether they can stand out in this competitive landscape.
“The future relationship between energy storage and renewable energy generation will present a balance through price signals in the electricity spot market. Moving forward, the costs of renewable generation, per kilowatt-hour expenses, and adjustment costs will decrease, but market scales will grow exponentially. Those who select the correct technological pathways and possess advanced productivity will rapidly grow alongside this market,” he affirmed. This industry consensus has encouraged domestic energy storage manufacturers to persist in product development and promotion.
Recently, various energy storage companies have launched multiple new products, with intense competition in the race for high-capacity cells. While 314Ah cells dominate the current market, 600+Ah cells are being developed for future demands, with some manufacturers strategically positioning themselves to capture opportunities between the two segments.
Simultaneously, the adaptability of product technology to different scenarios has increased, with high temperature resistance, long lifespan, and safety requirements becoming core selling points. This emphasis is also reflected in a new wave of capacity expansion among manufacturers. Since the first quarter of this year, several energy storage and cell companies have announced ongoing projects for capacity expansion. An incomplete count by First Financial News indicates that companies including CATL, Yiwei Lithium Energy, Envision Energy, Yunda Co., Ruipu Lanjun, Penghui Energy, and Nandu Power have collectively reported progress on capacity construction projects totaling over 120GWh.
While concerns have been raised about whether such capacity expansions are rational during a period of structural oversupply in the energy storage industry, Gao Xiubing responded in an interview that a considerable portion of the capacity supporting rapid growth in energy storage installations in recent years came from shared automotive battery production lines, primarily for batteries below 280Ah. Currently, the capacity requirements for energy storage batteries and power batteries have reached a point of differentiation, and new capacity construction is primarily focused on the growing demand for specialized large-capacity energy storage cells, representing advanced capacity and offering a rational pathway to replace outdated storage capacities in response to increasing demand.
“Regulations on energy storage expansions are gradually tightening across various regions. Previously, approval for capacity expansion only required environmental assessments, but now additional factors are being considered for new capacity control. Therefore, the impact of this expansion on lithium prices should generally be manageable. Moreover, cells are only one component of energy storage products; the competitiveness of system integration is also crucial. Thus, we will not blindly over-invest in this asset-heavy sector but will reserve part of the capacity and decide on the pace of technological upgrades based on future order situations and industry supply-demand dynamics,” Gao Xiubing concluded.
According to statistics from the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association, in 2024, China is expected to add 42GW/110GWh of new energy storage installations, accounting for more than 60% of the global total and representing a year-on-year growth of 99% in power and 130% in capacity.
Ni Tong remarked that energy storage installations have seen rapid growth in the first four years of the “14th Five-Year Plan,” achieving double-digit or even triple-digit annual growth rates, yet this remains far behind the pace of capital inflows. Investors are crowding every manufacturing segment of this super track. After experiencing this round of supply-side expansion, market investment enthusiasm is cooling. Until transformative production capacities emerge, companies must adapt to changes in this financing environment. For energy storage enterprises with advanced technologies, cautious capital entry can also serve as a protective measure.
At this stage, energy storage companies need to win profits by providing valuable services to customers, marking a new test for the industry.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/end-of-mandatory-energy-storage-era-restructuring-revenue-models-and-manufacturers-quest-for-survival/
