New Energy Storage Technologies: Overcoming Challenges for Large-Scale Development and Market Integration

Overview | Advancements in New Energy Storage
With the continuous expansion of installed capacity, breakthroughs in technological innovation, and the improvement of the electricity market system, the position of operating entities has become clearer. New energy storage is making significant strides toward scaling up.
Currently, to achieve large-scale, industrial, and market-oriented development, new energy storage must overcome three major challenges: technology, cost, and quality. Exploring and improving the market participation mechanisms for new energy storage, as well as establishing robust business models, is essential to resolving these challenges. This path is also crucial for the high-quality development of new energy storage.
As reported by Chen Yan from Outlook Weekly, when the wind energy from the Gobi Desert in Qinghai lights up Jinan in Shandong through the “West-to-East Power Transmission,” and when Hainan’s virtual power plants provide cooling relief during sweltering heat, new energy storage is no longer just a technical term. It has become a catalyst for green transformation and a stabilizing force for energy security.
New energy storage refers to storage technologies, excluding pumped hydro storage, that primarily provide electricity output and services. This includes advanced lithium-ion batteries, flow batteries, compressed air storage, and flywheel storage. The role of energy storage can be understood as a “super power bank,” which smooths out the instability of solar and wind power, increases the share of renewable energy, and enhances the flexibility of conventional thermal and nuclear power sources.
New energy storage is a key technology and foundational equipment for constructing a new power system. It is also a vital support for achieving carbon peak and carbon neutrality goals, and plays an important role in fostering new energy business models domestically and seizing international strategic opportunities. In 2022, the National Development and Reform Commission and the National Energy Administration issued the “14th Five-Year Plan for New Energy Storage Development,” which aims for new energy storage to transition from the initial commercialization phase to large-scale development by 2025, with conditions for large-scale commercial applications.
This year marks the end of the “14th Five-Year Plan” and is a critical year for the development of the new energy storage industry. Driven by both policy encouragement and market demand, new energy storage is transitioning from pilot demonstrations to large-scale commercial use, ushering in a golden period of rapid growth.
By the end of 2024, the cumulative installed capacity of new energy storage projects in the country is expected to reach 73.76 million kilowatts/168 million kilowatt-hours, approximately 20 times that of the end of the “13th Five-Year Plan” and over 130% higher than at the end of 2023. The average storage duration is 2.3 hours, an increase of about 0.2 hours compared to the end of 2023.
Interviews conducted by Outlook Weekly reporters reveal that on the path to scaling up, new energy storage continues to face challenges such as uneven technological development, low utilization rates of storage stations, long return periods, and price competition. Therefore, improving the market mechanisms for new energy storage through market-based approaches is essential for its high-quality development.
Entering a Rapid Development Phase
In 2024, the role and positioning of new energy storage will fundamentally change, with its importance and value significantly enhanced. The new energy storage industry in China is developing rapidly, with expanding installed capacity, ongoing technological breakthroughs, and an improving electricity market system, all contributing to a clearer status for operating entities.
The installed capacity is consistently increasing. For the first time, the cumulative installed capacity of new energy storage has surpassed that of pumped hydro storage, making it the second-largest flexibility resource in the power system, following thermal power, and serving as a critical support for the large-scale application of new energy sources.
Located in the Yuanqu County of Yuncheng, Shanxi, the Chengxuan Energy Storage Station, built by China Nuclear Power Group (Shanxi), is the first and currently the largest energy storage station in Yuncheng City. It has a construction scale of 200 MW/400 MWh, with a maximum charging and discharging power of 200 MW and a maximum energy storage capacity of 400 MWh. The charging and discharging rate is 0.5C, meaning it takes 2 hours to fully charge. Based on an average household’s annual electricity consumption of 3,000 kWh, this storage station can supply power for 130 households for a year.
“In the first quarter, we are targeting an on-grid electricity volume of 28 million kWh,” said Zhao Peng, director of the company’s electricity marketing center. Once the station is commercially operational, it can provide various services to the grid, including peak shaving, frequency regulation, black start, and demand response, enhancing the peak-shaving capability of the Yuncheng grid, the overall utilization of renewable resources, and the stable operation of the grid.
The scale of the Chengxuan Energy Storage Station reflects the trend towards larger, centralized energy storage in China. By the end of 2024, projects with an installed capacity of 100,000 kW or more will account for 62.3% of the total, an increase of about 10 percentage points from 2023. Projects with an installed capacity of 10,000 to 100,000 kW will comprise 32.8%, while those below 10,000 kW will represent 4.9%.
Behind this growth is the continuous rise in the installed capacity of new energy. As of the end of 2024, China’s renewable energy installed capacity is expected to reach 1.889 billion kilowatts, a year-on-year increase of 25%, accounting for approximately 56% of the total installed capacity in the country.
Industry experts note that the supply and consumption of new energy must be balanced. It is essential to continuously enhance the supply capacity of new energy to ensure that it can be generated while also accelerating the construction of new power systems to ensure that it can be utilized. In this context, new energy storage plays a critical role in ensuring peak supply and maintaining the stable operation of the power system.
According to projections from the Zhongguancun Energy Storage Industry Technology Alliance, new energy storage installations are expected to reach between 40.8 GW and 51.9 GW in 2025, with cumulative installations surpassing 100 million kilowatts.
Continuous Breakthroughs in Technological Innovation
New energy storage technologies, including electrochemical storage, mechanical storage, chemical storage, and electromagnetic storage, are advancing rapidly. The iterative progress in technology will effectively promote energy production and consumption, achieving multi-energy collaboration and better supporting the large-scale development of new energy storage.
The 110 kV Dinglun Energy Flywheel Energy Storage Station in the Tunliu District of Changzhi, Shanxi, officially began operation on September 4, 2024. This flywheel storage station has a millisecond-level response adjustment capability and is one of the high-quality regulation resources for the grid, filling a gap in the engineering application of large-capacity flywheel storage independent frequency regulation technology in China.
“The flywheel energy storage frequency regulation station acts like a pocket, temporarily storing excess electricity for immediate use when needed, addressing the dual challenges faced by power plants and users,” said Wang Xin, deputy commander of the construction project. The operation of the station will propel China’s flywheel energy storage technology into a new phase of large-scale commercial demonstration applications, representing an innovation in energy storage station applications.
Since the “14th Five-Year Plan,” technological breakthroughs have led to a diverse landscape in new energy storage technology routes. Among these, lithium-ion batteries hold a dominant position due to their high energy density and relatively low costs. As of the end of 2023, lithium-ion battery storage accounts for 97.4% of operational storage.
Additionally, technologies such as compressed air storage, flow battery storage, and flywheel storage have also seen rapid development. Since 2023, multiple 300 MW class compressed air storage projects, 100 MW class flow battery storage projects, and megawatt-level flywheel storage projects have commenced construction, alongside the implementation of new technologies such as gravitational storage, liquid air storage, and carbon dioxide storage, showcasing a trend of diversified development.
Improvement of the Electricity Market System
Since the launch of a new round of electricity system reforms in 2015, China has established a multi-level unified electricity market system that enables efficient coordination at the provincial, regional, and inter-provincial levels, organically linking mid-to-long-term, spot, and ancillary service markets.
In November 2024, five provinces—Guangdong, Guangxi, Yunnan, Guizhou, and Hainan—completed a trial run of full-month spot settlement. This trial attracted 315 generating entities and 1,800 generating units, achieving historic breakthroughs in market coverage, types of participating power sources, and the number of trading entities.
This trial run reflects the accelerated entry of operating entities into the market. Over the past decade of the new electricity system reform, the number of electricity operating entities in China has increased from 42,000 to 816,000, nearly a 20-fold growth.
As new operating entities such as distributed power sources, virtual power plants, and load aggregators continue to enter the market, enhancing the development level of China’s new energy storage industry becomes a critical task. Industry insiders believe that there should be better integration and coordination between the development plans for energy storage, distribution networks, new energy, and electric vehicles. Relevant departments should lead grid companies to adjust demand, grid structure, and load characteristics according to the characteristics of new energy resources, predict and periodically publish storage configuration needs to society, and guide investment entities in construction through market-based methods.
Challenges Ahead for Scaling Up
Currently, to achieve large-scale, industrial, and market-oriented development, new energy storage must overcome three major barriers: technology, cost, and quality.
Key core technologies remain to be tackled. Current storage products, especially large-scale storage systems, have not yet fully validated their cycle counts and overall life cycle performance, indicating a need for further technological innovation and research development.
Zhao Peng believes that some new energy storage technologies are still immature. For instance, most manufacturers in the market claim a lifespan of “6000 full charge and discharge cycles,” with a usage period of about ten years. “But 6000 cycles are merely experimental data, and the industry has not yet completed ten years of development; it is not feasible to reliably validate the durability of industrial products in the short term,” he remarked.
On February 17, the Ministry of Industry and Information Technology and eight other departments issued the “Action Plan for High-Quality Development of New Energy Storage Manufacturing,” which calls for innovation in new energy storage technology, encouraging the development of diversified storage technologies, and supporting breakthroughs in efficient integration and intelligent control technologies while focusing on multi-dimensional safety technologies across the entire lifecycle.
<p”Different scenarios have varying safety requirements, and the safety characteristics of different technologies may differ. Overall, safety can be ensured from three dimensions: storage technology routes, system operation and maintenance, and fire safety,” noted Yu Zhenhua, executive vice chairman of the Zhongguancun Energy Storage Industry Technology Alliance. He emphasized the need to promote advancements in safety technologies for lithium battery solid-state applications, enhance safety monitoring systems from a system operation perspective, and consider extreme scenarios during project lifecycle management, ensuring strict fire safety measures.
The mandatory storage requirement poses challenges for market regulation. The market participation mechanism for new energy storage is still incomplete. Due to enforced mandatory storage requirements, storage stations often face issues such as low utilization rates, prolonged return periods, and underutilization of storage value.
Data from the China Electricity Council indicates that in 2022, the average effective utilization coefficient of storage built for renewable energy was only 6.1%. By June 2024, the average operating time for renewable energy-based storage was only 3.74 hours per day, with an annual utilization rate of 31%. The actual operating efficiency of built-in storage remains low, and its regulatory role within the power system is not fully realized.
Industry insiders believe that the wind-solar-storage model has facilitated rapid growth in the storage industry; however, previous mandatory storage mechanisms led to chaotic competition.
In February, the National Development and Reform Commission and the National Energy Administration released a notice on “Deepening Market-Oriented Reforms of On-Grid Prices for New Energy to Promote High-Quality Development,” which explicitly stated that “mandatory storage configuration cannot be a precondition for the approval, grid connection, or on-grid operation of new renewable energy projects.” The suspension of “forced storage” is anticipated to usher in a new developmental pattern for new energy storage.
Wang Xin views this policy change as a positive signal, indicating that the construction of storage projects must adhere to market principles, transitioning from “mandatory configuration” to “demand-driven configuration,” thereby accelerating the improvement of new energy storage project utilization rates and diversifying revenue models to further promote the healthy development of the industry.
While discussing market regulation mechanisms, it is essential to focus on establishing sustainable business operating models. Currently, the profitability of new energy storage primarily relies on capacity pricing, price differentials, and ancillary services, while construction and operational costs significantly affect profitability. Many in the industry believe that investment recovery for storage stations must explore various revenue sources rather than being limited to fixed capacity pricing. The unique flexibility of new energy storage should be leveraged across multiple application scenarios to explore more diversified business models.
Quality poses safety risks. Quality is a crucial prerequisite for sustainable development, yet the current “price war” in the new energy storage sector has led some companies to prioritize short-term market share over quality.
Some firms have expanded production and reduced prices to gain market share, causing the price of storage batteries to plummet from 1.5 yuan/Wh to approximately 0.5 yuan/Wh within a year. The industry is concerned that such rapid price declines could lead to diminished product quality and potential safety risks.
In addition to the manufacturing side of storage cells, chaotic competition also exists among storage station owners. Some renewable energy companies opt for low-cost equipment to facilitate grid connection, neglecting the application efficiency of built-in storage.
Wang Xin believes that the key to promoting the healthy development of the new energy storage industry lies in encouraging manufacturers to focus on enhancing research and development, technical innovation, and continuously improving the performance of storage products. Concurrently, regulatory authorities should strengthen oversight to prevent “bad money from driving out good.”
Enhancing the Market to Foster Maturity
Industry insiders believe that while energy storage is allowed to participate as an independent entity across various electricity markets, the market mechanisms required to fully realize the value of new energy storage and achieve high-level utilization have not yet formed, especially in comparison to supportive policies for pumped hydro storage.
Exploring and improving the market participation mechanisms for new energy storage, as well as establishing robust business models, is key to resolving challenges in scaling, industrializing, and marketizing new energy storage. This is also essential for the high-quality development of the sector.
From the perspective of electricity pricing mechanisms, expanding the price differential between peak and valley periods is crucial. Based on current pricing mechanisms, it is important to widen the range of price fluctuations in mid-to-long-term and spot market transactions to effectively reflect the supply and demand relationship of electricity at different times.
In January, the National Development and Reform Commission and the National Energy Administration issued the “Implementation Plan for Optimizing the Regulation Capacity of the Power System (2025-2027),” which proposed improvements to the peak and valley pricing mechanisms. In regions with electricity spot trading, scientific settings for market price limits should be established to create reasonable peak-valley price differentials through market competition, actively promoting the participation of various regulation resources in the spot market.
Under favorable policies, there are new requirements for the operational capabilities of enterprises. “In a peak-valley price differential environment, having effective trading strategies for the electricity spot market is critical. This requires us to enhance operational capabilities, closely monitor local electricity trading markets and grid operations, and develop more targeted trading strategies to maximize returns,” Zhao Peng stated.
From the perspective of cost management mechanisms, it is essential to diversify the auxiliary service trading categories suitable for new energy storage and promote the sharing of auxiliary service costs among electricity users, allowing for reasonable management of storage costs.
Industry insiders argue that by introducing service categories that meet the characteristics of new energy storage, such as ramping and system inertia, the necessary regulation capabilities for the safe and stable operation of the power system can be provided. Moreover, as auxiliary services are regarded as public goods, the principle of “who benefits, who bears the cost” should be followed to ensure that all beneficiaries share the associated costs.
Additionally, providing guaranteed returns through pricing mechanisms will enhance the utilization of new energy storage and support the healthy development of storage stations.
“Initially, varying requirements for market entry rules and settlement methods across different regions led to significant differences in operational costs and settlement standards for power stations. For companies that entered the market early, their construction and operational costs were relatively high,” Zhao Peng mentioned, suggesting the optimization of capacity settlement mechanisms and targeted policy support for different types of storage stations.
From the perspective of capacity compensation mechanisms, it is vital to expedite the establishment of guidelines and implementation details for the pricing of new energy storage capacity.
In the short term, referencing pumped hydro storage and coal power can improve the capacity pricing mechanism for new energy storage, eliminating unfair competition among flexible resources. Industry experts suggest establishing capacity pricing for new energy storage on the generation side, enabling large storage systems to provide better capacity services and addressing issues such as peak shaving, frequency regulation, short circuit ratios, and over-voltage in distributed solar power.
In the long term, exploring the establishment of a capacity market will help reflect the scarcity of surplus capacity through market pricing mechanisms. Industry insiders recommend that relevant departments coordinate various capacity resources and develop a pricing mechanism that ensures “equal pay for equal work and equivalent quality,” further researching the capacity pricing mechanism for new energy storage to promote sustainable development in the industry through reasonable cost management.
Currently, as the new energy storage industry shifts from scale expansion to prioritizing quality and efficiency, and from policy-driven to market-led approaches, it faces both the growing pains of industrial development and new opportunities for advancement. In the long run, with the deepening of electricity mechanism reforms, the market will accelerate the elimination of inefficient capacities, compelling enterprises to pivot towards technology-driven and value-creating models. Innovative market mechanisms will better support the high-quality development of the new energy storage industry.