New Time-of-Use Electricity Pricing in Jiangsu: Implications for Commercial Energy Storage

On April 30th, Jiangsu Province announced a new time-of-use electricity pricing policy, which has stirred considerable discussion within the commercial and industrial energy storage sector. The primary point of contention is that the basis for pricing for commercial users has shifted from the downstream “end-user price” to the upstream “user purchase price.” Although the floating rate has increased, the difference between peak and off-peak prices has narrowed, thereby reducing the arbitrage opportunities for commercial energy storage. Despite a draft consultation document that aimed to mitigate concerns, the formal implementation has left many disappointed and apprehensive about the future of energy storage in Jiangsu and beyond.

In fact, setting the pricing basis at “user purchase price” is not unique to Jiangsu; it aligns with the trend towards market-based pricing in the electricity sector, which is a rational shift. Moving forward, the focus of the time-of-use pricing policy will likely center on time slot configurations and floating rates rather than the pricing basis itself. Previously, the price difference between peak and off-peak periods in Jiangsu was approximately 0.85 yuan/kWh, placing it among the highest in the country. As a major industrial province, Jiangsu’s significant electricity consumption has made it one of the most attractive locations for commercial energy storage projects, ranking in the top three nationally for installed capacity.

Overall, Jiangsu’s time-of-use pricing policy reflects the province’s exploration of commercial energy storage scenarios, albeit amidst widespread debate. As the proportion of installed photovoltaic capacity increases and electricity market trading becomes more prevalent, the optimization and adjustment of time-of-use pricing will continue to be a long-term trend. Throughout this transition, the value of commercial energy storage is both undeniable and subject to change. The sector must evolve in tandem with these developments.

1. The New Policy in Jiangsu

The new time-of-use pricing policy in Jiangsu has both positive and negative aspects. On the upside, the expanded scope of the policy allows more commercial users to participate, and the addition of a midday off-peak period has reduced midday electricity prices. The optimization of floating rates has increased the peak floating rate to 80% and the off-peak floating rate to 65%. However, despite these improvements, the adjustment from the downstream “end-user price” to the lower upstream “user purchase price” means that associated costs from transmission and distribution, line losses, system operation, and government fees will no longer fluctuate. This results in an overall reduction in the price differences between peak and off-peak periods.

Specifically, the price difference before and after the new policy will decrease from about 0.85 yuan/kWh to 0.65 yuan/kWh, while the flat price difference will drop from approximately 0.37 yuan/kWh to 0.28 yuan/kWh, a reduction of about 25%. This diminishes the feasibility of arbitrage and suggests a potential shift in Jiangsu’s approach from “dual charging and discharging” to “single charging and discharging,” thereby reducing the regional scenario’s value. It’s no wonder the reaction has been so intense.

2. Ongoing Game of Interests

Despite the adjustments, Jiangsu is not facing an insurmountable crisis. The province’s previously high price differences were among the best in the country, and the new policy aligns more closely with the national average. Even so, commercial energy storage remains economically viable, indicating that the sector is maturing and that the excess profits are gradually diminishing. The rapid development of commercial energy storage in previous years is still fresh in memory, and it may be time for a re-evaluation of the market.

Any policy optimization does not equate to the demise of an industry. In the past, commercial energy storage projects were highly sought after, similar to regions such as Guangdong and Zhejiang, where competition for quality projects was intense. Although recent adjustments to the time-of-use pricing policy in Jiangsu may have changed the landscape, the overall feasibility of commercial energy storage projects remains intact. It simply means that stakeholders in the equipment, investment, and scenario sectors must reallocate benefits.

As discussed in a previous article titled “Commercial Energy Storage Enters a ‘Revenue Sharing’ Mode,” the underlying logic of the industry is evolving. With the decline in scenario value in Jiangsu, the previously high resource value may need to be adjusted first, leading to a reevaluation of the participants in commercial energy storage. In this ongoing battle for interests, high-quality scenarios and their owners will continue to hold significant influence and remain coveted resources for equipment and investment firms. In summary, while policy adjustments may present challenges, they do not hinder industry progress, but rather lead to a redistribution of interests. Asset holders with sustained operational capabilities will reap more value and hold greater industry leverage.

3. From Peak and Valley Arbitrage to Operational Services

Recently, the National Energy Administration has been quite active. Following the release of Document 136, which promotes the entry of new energy into the market, efforts to accelerate the construction of new power systems have been intensified, with frequent announcements of related supporting policies. This has also provided commercial energy storage with more depth and meaning.

A key focus has been the diversification of profit models, transitioning from the currently singular peak and valley arbitrage model to a more varied offering including peak shaving, frequency regulation, spot trading, and virtual power plant services, thereby expanding revenue sources. Jiangsu has emphasized that as the electricity market develops, energy storage projects can collaborate with renewable energy generation projects to obtain market value through peak shaving; as the electricity spot market normalizes, price differences during various time periods will further widen, and energy storage projects can directly participate in electricity market transactions, particularly in the spot market, to achieve profits through low charging and high discharging; during peak summer (or winter) periods, energy storage projects can act as load aggregators or virtual power plant users, further increasing revenue.

This illustrates a new direction for commercial energy storage in the future. Clearly, while one door of policy closes, another opens. For commercial energy storage, the future cannot solely rely on the simple model of peak and valley arbitrage; it must adapt to the trends of new power systems and find ways to generate revenue across various dimensions of market-based trading. Peak and valley arbitrage represents static basic revenue, while operational services embody proactive management revenue, particularly for high-quality commercial owners with greater flexibility. Naturally, this raises the bar for operational capabilities, indicating that the industry threshold is increasing. Development in any industry is not instantaneous or permanent, and the emerging commercial energy storage sector must continuously innovate to remain viable.

The development of renewable energy facilitates changes in power structures, and time-of-use pricing policies will continue to be optimized. The value of commercial energy storage will always exist, with its significance progressively enriched. High-quality owners will remain a rare resource, while excellent operators will play crucial roles in generating abundant operational profits. This should be the current strategic focus for commercial energy storage. The momentum for industry development is undeniable; the key lies in how to adapt to changes.