Navigating the Energy Storage Landscape: Challenges and Opportunities in China’s 2025 Policy Shift

What Are the Many Energy Storage Policies of 2025 Aiming For?

As of May 8, 2025, the Chinese energy storage industry is grappling with overcapacity and intense price competition. Policy adjustments are accelerating a reshuffling of the industry, as the mandatory energy storage requirements are lifted, and enhanced safety regulations and power market reforms shift competition toward technology and value creation. Companies must navigate profitability pressures and technological innovation challenges while seizing opportunities for high-quality development and expansion into international markets.

1. Macro Background and Industry Status

The global supply (bar graph) and demand (line graph) trends for lithium batteries in energy storage illustrate that China’s energy storage capacity expansion (light-colored section) far exceeds global demand growth, indicating a severe overcapacity situation as we enter 2025. The rapid growth of new energy installations in China stands in stark contrast to the somewhat contradictory expansion of the energy storage industry itself.

On one hand, the scale of renewable energy generation is soaring. By the end of 2024, the total installed capacity for wind and solar energy in China reached approximately 1.45 billion kilowatts, marking a 14.6% year-on-year increase. The combined capacity of wind and solar power has historically surpassed that of coal, now accounting for over 38% of the total installed capacity.

This surge in renewable energy generation has placed immense pressure on the real-time balance of the power system, creating an urgent need for flexible adjustment resources like energy storage to enhance system stability and accommodate renewable energy consumption.

Conversely, the energy storage industry is facing significant challenges, including overcapacity and intense price competition. In 2024 alone, over 70,000 companies entered the energy storage sector, resulting in fierce market competition and a continuous decline in the prices of energy storage systems and products. The bidding prices for large-scale energy storage systems have reached historic lows, with some projects in 2024 awarded at as low as 0.417 yuan per watt-hour. By early 2025, many manufacturers were quoting prices below 0.5 yuan/Wh, leading to a more than 60% drop from the peak prices of a year prior, nearing or even falling below the cost lines for some manufacturers. This rapid capacity expansion has caused a serious supply-demand imbalance, with actual capacity utilization of energy storage cells in China estimated at only about 60%, resulting in significant inventory backlog and pronounced product homogenization.

The direct consequence has been a sharp contraction in industry profits, increasing survival pressures on companies, and accelerating the concentration of market share among leading players, while many small and medium enterprises lacking core competitiveness struggle to survive. Simultaneously, some local governments’ previous implementation of mandatory energy storage policies to promote renewable energy consumption has revealed negative effects in practice. Although the initial intention of these policies was positive, the absence of a comprehensive market-based mechanism for utilization and price compensation has resulted in many passively bundled energy storage projects having extremely low utilization rates (some below 10%), leading to a waste of resources.

Overall, as we enter 2025, the energy storage sector resembles a vehicle that has suddenly sunk into a quagmire after racing at high speed—the immense demand for flexible resources driven by renewable energy development starkly contrasts with the inefficiencies and profitability crises of the energy storage industry. The entire sector is at a critical historical juncture that urgently needs adjustment and breakthroughs.

2. Core Policy Content and Implementation Rhythm

In response to the challenges and contradictions faced by the energy storage industry, a series of significant policy documents have been released by the national government and key provinces since 2025. These policies aim to adjust and regulate various dimensions, including renewable energy power generation mechanisms, electricity market construction, electricity pricing formation, and project safety management, guiding the energy storage industry toward healthier and higher-quality development. Below is an overview of these core policies and their content orientation:

• January 2025: Full marketization of renewable energy grid pricing (Document No. 136 from the National Development and Reform Commission)
  Key Point: Marks the end of fixed pricing for new renewable energy generation (primarily wind and solar), transitioning to a fully market-based pricing system (effective from June 1, 2025). Existing projects will transition smoothly under the “sustainable development pricing settlement mechanism.”
  Significant Impact on Energy Storage: Clearly removes the mandatory requirement for renewable projects to include energy storage as a precondition for grid connection or approval, marking the formal exit of the “mandatory energy storage” policy.
• April 2025: Accelerating the construction of the national electricity spot market (Document No. 394 from the National Development and Reform Commission)
  Key Point: Fast-tracks nationwide electricity spot market development, requiring basic coverage by the end of 2025 and initiating continuous settlement trials.
  Timeline: Hubei and Zhejiang will begin formal operations by the end of June and by the end of the year, respectively, with most other provinces starting trial operations by year-end.
  Significance: Accelerates the establishment of a unified national electricity spot market, allowing real-time electricity prices to reflect supply and demand, creating a platform for flexible resources like energy storage to realize their value through market mechanisms.
• April 2025: Jiangsu Province optimizes commercial and industrial time-of-use pricing policy
  Key Point: Expands the time-of-use pricing range for commercial and industrial users and adds a “midday low tariff” period (11 am to 1 pm in summer/winter, 10 am to 2 pm in spring/autumn) with a 65% reduction in low tariff prices compared to standard rates.
  Intent: Encourages electricity consumption or storage charging during peak solar production hours, promotes local renewable energy consumption, and guides load balancing.
  Potential Impact: Adjusting the calculation basis for peak and low tariffs may compress the profit margin for users’ peak and low tariff arbitrage.
• April 2025: Jiangxi Province improves the time-of-use pricing mechanism (draft for consultation)
  Key Point: Proposes to routinely add a daily 2-hour “midday deep low tariff” (12 pm to 2 pm) except in winter, with a deep low tariff reduction of up to 70%. Additionally, it plans to fully resume the implementation of time-of-use pricing for general commercial and industrial users.
  Encouraging Energy Storage: The document explicitly encourages commercial and industrial users to adopt energy storage to lower costs by shifting electricity consumption timings.
  Trend: Utilizes price signals to guide user behavior, supporting renewable energy consumption, with energy storage value increasingly dependent on market adjustment.
• April 2025: Essential safety enhancement project for energy storage stations (draft for consultation)
  Key Point: Dubbed the “strictest safety mandate,” aimed at comprehensively enhancing the safety standards of electrochemical energy storage stations.
  Key Measures: Increase project entry thresholds (e.g., prohibition after incidents); strengthen safety design and fire standards (e.g., capacity and location restrictions); initiate mandatory safety renovations for existing projects (investigations by the end of 2025, completion by the end of 2026); enforce strict acceptance for new projects (sampling inspections required for acceptance); and significantly enhance operational safety monitoring capabilities.
  Impact: Substantially raises safety thresholds for the industry, accelerating the elimination of non-compliant enterprises and establishing a solid safety foundation for the long-term healthy development of the energy storage industry.

3. Systematic Impact of Policies on the Energy Storage Industry

The combined implementation of these policies is profoundly affecting the development landscape, business models, and market expectations of China’s energy storage industry:

• Accelerating industry consolidation, ushering in the era of “survival of the fittest”
  The dramatic shift in the policy environment (particularly the removal of mandatory energy storage requirements, introduction of market competition, and strengthening of safety regulations) is driving a rapid reshuffling of the energy storage industry. The low-quality, overcapacity resulting from years of “barbaric growth” now faces immense pressure, leading to increased occurrences of project stagnation, delays, and even order cancellations. The market is transitioning from a mere price war to a focus on technology, quality, safety, and sustainable profitability, with many companies lacking core competitiveness expected to be eliminated (potentially up to an 80% clearance rate). The industry concentration is set to increase significantly, ultimately moving toward a high-quality development phase characterized by “survival of the fittest.”
• Significant changes in revenue models, with market-based value realization becoming central
  The profitability model for energy storage projects is transitioning from reliance on administrative directives (mandatory energy storage) or simple price differentials to a more diversified approach that increasingly depends on market mechanisms. The “capacity leasing/compensation + electricity market trading (energy + ancillary services)” model for independent energy storage stations is expected to become mainstream. The comprehensive rollout of the electricity spot market provides broader opportunities for energy arbitrage and ancillary services, although local adjustments to time-of-use pricing may compress some traditional peak and low tariff arbitrage profits for user-side energy storage. In the future, energy storage operators will need to develop stronger market analysis, trading strategies, and refined operational capabilities to effectively capture revenue opportunities in a volatile market environment.
• Effects of the adjustment to “mandatory storage” policy become apparent, with market-based incentive mechanisms needing improvement
  The cancellation of mandatory energy storage requirements may lead to a short-term slowdown in the growth of energy storage demand associated with renewable energy projects, leaving some economically unviable projects in a difficult position. However, this is beneficial for eliminating industry bubbles, allowing energy storage configurations to return to their true technological and economic values, and achieving a “de-administrative” healthy development. After the policy shift, how to effectively incentivize necessary energy storage investments through market-based mechanisms (such as capacity compensation and improvements to ancillary service markets) will become a crucial topic, with collaborative market models like “shared energy storage” likely to develop more rapidly.
• Electricity pricing mechanism reform drives energy storage strategy upgrades
  The full marketization of renewable energy grid pricing and accelerated construction of electricity spot markets signify that future electricity price volatility will significantly increase, providing a foundation for energy storage to create value through “low charging, high discharging.” However, adjustments to time-of-use pricing policies (such as adding midday low tariffs) may alter traditional peak and low tariff arbitrage logic, requiring user-side energy storage to explore more diverse pathways for value realization (e.g., participating in demand response, ancillary services, etc.). Overall, energy storage operations will increasingly rely on accurate forecasting and rapid response capabilities to real-time market price signals, necessitating more intelligent scheduling strategies and advanced energy management technologies.
• Stringent safety regulations reshape industry thresholds and landscape
  The strict safety regulations represented by the “Essential Safety Enhancement Project” elevate “safety” to the primary threshold for survival and development within the energy storage industry. This will undoubtedly increase compliance costs for energy storage systems (requiring more investment in battery selection, fire safety, monitoring, etc.) and may extend project timelines in the short term. However, in the long run, high safety standards will effectively purify the market environment, eliminate irresponsible companies, enhance the overall technical level, reliability, and social trust in the industry, clearing key obstacles to the scaling and sustainable development of the energy storage sector, while also giving rise to new service market opportunities in safety assessments and professional operations.

4. Major Challenges and Potential Opportunities Facing the Energy Storage Industry

In the new policy environment, the energy storage industry faces both challenges and opportunities:

• Major Challenges:
  Policy uncertainty remains: The details of market rules are still being implemented and adjusted, creating risks for long-term investment decisions.
  Profitability pressures and financing difficulties: Price wars are compressing profits, increasing uncertainty in market-based revenues, combined with rising financing thresholds, placing significant survival pressures on companies, especially small and medium enterprises.
  Technology route selection and cost control: Multiple technology pathways coexist, leading to high selection risks; simultaneously, there is a need to continuously reduce costs and improve efficiency while ensuring safety.
  Application scenario expansion and coordination: New, sustainable profit scenarios must be developed, while coordination mechanisms between different scenarios and stakeholders remain underdeveloped.
• Potential Opportunities:
  High-quality development opportunities: Industry consolidation will favor high-quality enterprises, returning market competition to rationality and emphasizing technology and quality.
  Market mechanisms releasing value: Improvements in the electricity spot and ancillary service markets will provide energy storage with richer, more market-oriented paths for value realization.
  Technological innovation and industry upgrading: Market and regulatory pressures will compel companies to increase R&D investment, driving rapid advancements in battery technology, system integration, and intelligent operations.
  Diverse application scenario potential: Emerging demands such as long-duration energy storage, vehicle-to-grid (V2G) interactions, microgrids, and comprehensive energy services for commercial and industrial users will gradually be unleashed.
  Vast international market space: Against the backdrop of a global energy transition, the demand for energy storage in overseas markets is robust, with Chinese companies poised to actively expand due to their industrial chain and cost advantages.

Conclusion

The series of significant policies initiated since 2025 is profoundly reshaping the development logic and market ecology of China’s energy storage industry. While this transformation has brought about short-term pains and challenges, it also provides a crucial opportunity for the industry to eliminate bubbles, return to value, and transition from extensive growth to high-quality development. Practitioners in the energy storage sector must accurately grasp policy directions, deeply understand market changes, and adopt a more rational and pragmatic attitude, placing greater emphasis on technological innovation and safety compliance while focusing on enhancing core competitiveness. In the midst of the dynamic energy revolution, challenges and opportunities coexist. We have reason to believe that after this round of profound adjustments and cleansing, China’s energy storage industry will become more mature and resilient, ultimately playing an irreplaceable key role in constructing a new power system and supporting the nation’s dual carbon goals, realizing its rightful commercial and social value.