In recent years, China’s energy storage industry has experienced explosive growth. However, challenges such as “price wars” and insufficient investment returns have significantly hindered the industry’s sustainable development. Reforming energy storage pricing has become crucial for breaking through these barriers.
As of 2025, significant changes are underway. Following the release of the Notice on Deepening the Market-Oriented Reform of New Energy Grid Connection Prices in February, known as the “136 Policy,” and the issuance of the Opinions on Improving Price Governance Mechanisms and the Notice on Accelerating the Construction of the Electricity Spot Market in April, the direction for future reforms in the energy storage sector is becoming clearer. Under these policies, the industry is expected to shift from mere “scale expansion” to “value cultivation.”
At this pivotal moment of transformation, energy storage companies are rethinking their development strategies. In the wave of market-oriented reforms, these companies must transition from being mere equipment suppliers to “comprehensive energy service providers,” actively participating in electricity market design and operations to gain a competitive edge. Chu Pan, an expert from the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association, emphasized the need for Chinese energy storage enterprises to change their mindset, seek innovation, and break free from reliance on established paths.
Entering a New Stage of Market Competition
Mandatory energy storage, which requires a certain proportion or capacity of energy storage systems to be included in the development, approval, or grid connection of new energy projects (such as photovoltaics and wind power), was the primary driver of energy storage capacity growth in China. In 2017, the province of Qinghai mandated the construction of energy storage devices in related wind power projects, marking the beginning of this practice in the country. Over the past eight years, energy storage capacity has soared. According to data from the National Energy Administration, by the end of 2024, the cumulative installed capacity of newly built energy storage projects in China reached 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. However, this increase has also led to lower quality capacities and price competition, with energy storage system prices dropping to below 0.3 yuan/Wh and industry gross margins declining to 8%.
This year has seen a series of major policies aimed at guiding the energy storage market into a new phase of competition. On February 9, the “136 Policy” officially eliminated mandatory energy storage, marking the entry of China’s energy storage sector into a market-oriented competition phase. Chu noted that this cancellation does not signify a lack of emphasis on energy storage; rather, it aims to alleviate the burden on the somewhat sluggish new energy generation sector, enabling faster and better development.
By the end of April, the National Development and Reform Commission and the National Energy Administration jointly issued the “394 Document,” which sets out a timeline for achieving full coverage of the electricity spot market by the end of 2025. This transition means that energy storage will evolve from a simple “technical tool” to a key flexible resource with independent market status. For instance, with policies mandating capacity markets, energy storage will be able to secure fixed returns by providing standby capacity.
Recently, various regions have introduced energy storage price support policies. In terms of capacity compensation mechanisms, Inner Mongolia and Hebei have implemented independent energy storage capacity compensation policies. Inner Mongolia compensates the amount of electricity discharged from independently planned energy storage, with a set compensation standard for the year; in 2025, this standard is 0.35 yuan/kWh. Hebei continues to enforce a capacity price incentive mechanism for independent energy storage, where energy storage stations compete for capacity compensation based on their connection order, with an annual tax-included capacity price of 100 yuan/kWh. These policies aim to guide investment and construction in energy storage projects and enhance their regulatory capabilities and economic benefits.
The reform of the electricity system is gradually unlocking the value of energy storage through market-oriented mechanisms, promoting a shift from scale expansion to high-quality development. The ongoing transformation in the energy storage market is marked by a dual approach of breaking down old frameworks while establishing new ones. In the short term, the industry must navigate market fluctuations and capacity clearance resulting from the removal of mandatory storage, while in the long term, it needs to build a pricing system centered on the electricity spot market, supplemented by capacity markets.
Industry insiders believe that policies will lead the sector to gradually shift from price competition to competition based on technology and quality, raising the overall commercial awareness throughout the industry. A representative from Shenzhen Kelu Electronics Technology Co., Ltd. stated that leading enterprises will further solidify their market position through technological innovation and market expansion, resulting in increased industry concentration. Smaller and medium-sized enterprises will need to adopt differentiated competition or form alliances to survive and thrive.
Short-term Pain is Evident
Under the influence of significant new policies such as the “136 Policy” and “394 Document,” the energy storage industry is currently experiencing short-term challenges. Recent data from the Zhuhai Energy Storage Industry Technology Alliance (CNESA) indicates that in the first quarter of 2025, the newly operational capacity of energy storage projects in China reached 5.03 GW/11.79 GWh, representing a year-on-year decrease of 1.5% and 5.5%, respectively. This marks the first time since 2020 that the quarterly new installed capacity has shown negative growth, with both the front-of-the-meter and user-side installations declining. Additionally, many listed companies in the sector have announced delays in the construction of energy storage projects, citing reasons such as market environment changes and adjustments in customer demand forecasts.
While this short-term pain is unavoidable, it is expected to help rectify industry chaos in the long run. Tian Qingjun, Senior Vice President of Envision Group and President of Envision Energy Storage, noted that during previous new energy project developments, the distribution of profits along the industry chain had been imbalanced, leading to high non-technical costs and low profits for upstream and downstream players, which ultimately affected healthy industry growth.
As a company that has been in the energy storage battery field since 2011, Guangzhou Penghui Energy Technology Co., Ltd. has recognized that the full market entry of new energy generation and adjustments to mandatory energy storage policies present excellent opportunities for companies committed to technological innovation, pushing the industry from price competition to value creation.
However, energy storage companies face numerous challenges as they independently transition to market-oriented operations. Historically, many energy storage stations relied on charging capacity rent from new energy generation projects as their primary source of income. Currently, the profitability model for independent energy storage remains unclear.
With the cancellation of mandatory storage, energy storage must seek new revenue opportunities in fluctuating spot electricity prices and frequency modulation markets, necessitating higher demands for price mechanism design. Feng Siyao, Chief Analyst at the Energy Storage Application Branch of the China Chemical and Physical Power Industry Association, pointed out that the insensitivity of price signals has long been a significant flaw in the energy storage pricing mechanism. In traditional electricity markets, price fluctuations are limited and do not adequately reflect real-time changes in supply and demand, preventing energy storage’s value in “peak shaving and valley filling” from being fully realized. In some regions, minimal price differences between peak and valley periods result in negligible profits for energy storage, failing to cover operational costs.
Moreover, the initial investment costs for energy storage projects are relatively high. For instance, a typical 100 MW/200 MWh lithium iron phosphate energy storage station requires a total investment of about 450 million yuan, with over 60% of this being attributed to the battery system. Under the existing pricing system, it is challenging to allocate these costs effectively to electricity consumers, resulting in a prolonged investment return period and dampening corporate enthusiasm for investment.
Focusing on Technological Innovation and Product Upgrades
In this transformative landscape, only those companies that possess genuine technological strength, market insight, and ecological integration capabilities will succeed in the value-driven arena. Previously, many companies concentrated on capturing market share through low prices, leading to significant product homogenization. With the introduction of various policies, the competitive ecology of the energy storage industry is gradually shifting from “price competition” to “value competition.” Xiang Weili, Executive Director at Sullivan Greater China, remarked that in the future, companies with core technologies and stable supply chains will emerge as leaders, accelerating the industry’s evolution toward higher quality, standardization, and differentiation.
The maturation of the energy storage industry relies on technological advancements. In the future, the core of market competition will undoubtedly be centered around technological innovation and product enhancement. Feng Siyao noted that innovation in energy storage battery materials is currently a major focus in the market. Efforts are underway by various manufacturers to develop next-generation energy storage batteries, such as sodium-ion and all-solid-state batteries, as well as long-duration energy storage technologies across different technical routes, which are expected to significantly enhance system performance and expand application scenarios.
Furthermore, the digitization, intelligence, and safety of energy storage systems are also critical areas of industry focus. As large-scale energy storage systems are integrated into the grid, operational management becomes more complex, prompting the introduction of digital technologies like artificial intelligence (AI) into energy storage scheduling and battery management to optimize operational efficiency. Using AI to predict load and battery status, as well as making intelligent decisions on charging and discharging, is becoming a trend in the industry. The aforementioned representative from Kelu Electronics revealed that the company is integrating AI algorithms deeply into the entire process of energy storage systems and electricity trading to enhance the system’s “vitality,” enabling customers to proactively generate revenue and achieve sustained economic value.
A representative from Penghui Energy also shared that the company has a clear strategy: extending upstream into materials and fundamental research to build a more comprehensive industrial chain, while also developing differentiated solutions for diverse scenarios such as smart energy, mobile storage, and extreme environments. With the rapid proliferation of AI in domestic manufacturing, energy storage products are expected to significantly accelerate the process of intelligent integration while ensuring high safety and efficiency.
As the energy storage market and electricity market reforms enter what can be considered the “deep water zone,” the energy storage industry is gradually transitioning from a “supporting role” to a “mainstream player.” The introduction of a series of related policies is expected to reassure companies across the entire energy storage industry chain, helping the sector escape the vicious cycle of “internal competition” and establish a market ecology that rewards excellence and penalizes poor performance.
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