The End of Mandatory Energy Storage: New Players Exit as Zero-Carbon Parks Emerge as the Next Battleground for Energy Storage

Last year, 40% of new players in the commercial storage sector exited the market! The era of mandatory energy storage is coming to an end, with zero-carbon parks poised to become the new battleground for energy storage.

In recent years, the rapid growth of the energy storage industry has exceeded market expectations. Regardless of the fluctuating prices of lithium carbonate, the energy storage sector continues to experience robust growth. By 2024, the global installed capacity of new energy storage systems is projected to reach 177.8 GWh, reflecting a year-on-year increase of 62%, with lithium-ion batteries remaining the dominant technology. In China, the construction of new energy power systems is accelerating, with an expected total of over 100 GWh of new energy storage capacity added in 2024, representing a 136% year-on-year growth, capturing 62% of the global market share (by energy scale).

Currently, the energy storage industry is experiencing rapid market expansion, showcasing a vibrant state. However, severe competition is also present, causing significant challenges for small and medium-sized enterprises. At the recent CLNB 2025 (10th New Energy Industry Expo), Wang Liang, R&D Director at Ganfeng Lithium, highlighted three key manifestations of the increasing competition in the commercial energy storage market. Firstly, there has been a surge of new entrants and a rapid exit of many companies. In 2023, over 50,000 new commercial energy storage companies emerged, yet by the end of 2024, 40% of these players had exited the market. The rising technical barriers and financial pressures are accelerating industry consolidation.

Secondly, there is a fierce competition for distribution resources. Due to the highly decentralized nature of commercial energy storage projects, which rely on localized deployment, intermediaries have become crucial players, leading to increased costs for certain project fees, which have risen to 0.2 yuan/Wh. Lastly, the price war in the market has reached extreme levels. With low technical barriers in system integration, some companies are resorting to undercutting prices to gain market share, leading to instances where firms are even quoting below cost, severely compressing profit margins within the industry. According to incomplete statistics from the China ZGC Energy Storage Industry Technology Alliance (CNESA), the average winning bid price for a 2-hour lithium iron phosphate energy storage system (excluding user-side installations) in 2024 was 628.07 yuan/kWh, a 43% decline compared to the previous year; while the average winning bid price for EPC contracts was 1181.28 yuan/kWh, down 27.3% year-on-year.

With the continued decline of lithium carbonate prices, what changes will the release of Document No. 136 bring to the energy storage industry? The era of mandatory energy storage is nearing its end, shifting regulatory resources towards market-driven energy storage development. Initially, the industry rapidly expanded due to the mandatory energy storage policy on the power supply side. However, as energy storage stations became standard for new energy development and investment, investors began to focus more on energy storage prices. Consequently, low-cost, low-quality products frequently won bids, resulting in many energy storage stations being built but not utilized. By the end of 2023, mandatory energy storage installations accounted for 42.8% of total energy storage installations in China, yet the average utilization index for new energy storage was only 17%.

This year, a new directive has completely decoupled energy storage from new energy requirements. In February, the National Development and Reform Commission and the National Energy Administration jointly issued a notification titled “Notice on Deepening the Market-oriented Reform of New Energy On-grid Electricity Prices to Promote High-Quality Development of New Energy” (referred to as Document No. 136), which explicitly cancels the mandatory energy storage policy. During the energy storage forum at CLNB, Liu Guohua, General Manager of the Grid Engineering Company of the Northwest Institute of China Electric Power Engineering, stated that this shift means that energy storage is no longer a mandatory requirement but rather a choice made based on economic considerations, transitioning the energy storage industry from “passive allocation” to “economic-driven” development.

The cancellation of mandatory energy storage will alleviate cost pressures on projects. According to Tang Tuo, a consulting engineer at the Policy and System Research Institute of the State Grid Energy Research Institute, the policies outlined in Document No. 136 may further lower market transaction prices for new energy. Investment strategies in new energy will shift from “pure resource competition” to “comprehensive capability competition,” wherein the profitability of new energy investors will directly correlate with their planning, cost control, operational capabilities, and technological innovation. While there may be short-term declines in demand for regulatory resources in the power system, long-term demand is expected to rise, transitioning regulatory resources from “policy-driven” to “market-driven.” The overall cooling of energy storage on the power supply side will refocus development efforts towards grid-side and user-side shared independent energy storage.

Document No. 136 aims to establish a sustainable pricing mechanism for new energy, effectively linking the market’s invisible hand with proactive government support to significantly promote the comprehensive entry of new energy into the market. To facilitate the healthy development of the energy storage industry and enhance its role in peak supply and flexible regulation, Sun Guangzeng, a researcher at the State Grid Energy Research Institute, suggested several measures: firstly, to integrate planning for the power system’s regulatory capabilities while addressing diverse application needs to promote coordinated development of energy storage; secondly, to strengthen research on long-duration energy storage technologies, emphasizing investment support in national technology innovation systems; and thirdly, to expedite the improvement of market mechanisms that allow energy storage facilities to participate in market transactions independently, alongside new energy, load aggregators, virtual power plants, and other forms, while developing differentiated market and pricing mechanisms.

With the deadline of June 1, 2024, established by Document No. 136, existing projects will still benefit from policy protection, while new projects must confront market-based pricing. Analyst Ye Mingyuan from Shanghai Nonferrous Metals Network anticipates that the removal of mandatory energy storage will likely lead to a 15% decline in large storage installations. Notably, after the end of mandatory energy storage, inefficient capacities that relied on policy incentives will be swiftly cleared from the market, while quality capacities may welcome a healthier competitive landscape, eliminating the “bad money driving out good.”

However, some commercial energy storage companies have reported that while the impact of Document No. 136 on their operations is minimal, the market remains highly competitive, with international expansion becoming a primary avenue for maintaining profitability. Staff from a Jiangsu-Zhejiang energy storage company stated that the cancellation of mandatory energy storage did not significantly impact their operations, as they previously did not engage in large-scale power plant storage due to insufficient quality requirements, opting instead for the lowest-priced energy storage equipment merely to meet quotas. “Those who previously engaged in mandatory storage projects could not meet our standards for commercial projects because their quality was inadequate.” Despite the expulsion of “bad money,” competition within the energy storage industry remains fierce. The staff member noted, “Doing energy storage projects is still challenging; it is difficult to make a profit in provinces with small price differentials.” However, their company currently operates on a make-to-order basis, fully utilizing production lines, with profits from overseas markets accounting for more than half of total revenues, “Profits from overseas projects are significantly higher than those from domestic projects.” Thus, expanding internationally is not merely a forced response but rather a strategic move to optimize the supply chain and enhance profits.

In recent years, Chinese energy storage companies have demonstrated strong competitiveness in international markets. According to the “China Energy Storage Battery Industry Development White Paper (2025)” published by the Ivy Economic Research Institute in conjunction with the China Battery Industry Research Institute, it is projected that global energy storage battery shipments will reach 369.8 GWh in 2024, representing a remarkable year-on-year growth of 64.9%. Chinese companies are expected to contribute 345.8 GWh of this total, accounting for 93.5% of global energy storage battery shipments and marking a 2.6 percentage point increase year-on-year. The overseas market is anticipated to grow rapidly, with significant increases in energy storage tenders and installed capacity in Europe, the Middle East, and the Asia-Pacific regions. Preliminary statistics indicate that in 2024, Chinese energy storage companies are set to sign overseas contracts exceeding 150 GWh, encompassing orders for battery cells, battery modules, PCS, energy storage systems, and EPC services. Concurrently, numerous listed companies are expanding their production capacities targeting the overseas market. For instance, companies like Yiwei Lithium Energy (300014.SZ) and Goodwe (688390.SH) are establishing factories in Southeast Asia, while Deye Co., Ltd. (605117.SH) has spent nearly 100 million yuan on land to propose building a 16 GWh annual production line for commercial energy storage. Deye stated, “As overseas demand for commercial energy storage continues to grow, our management has made early capacity plans based on the current industry environment and outlook to meet future sales growth in commercial energy storage.”

Beyond international expansion, domestic zero-carbon parks may represent the next major battleground for the energy storage industry. Industrial parks are crucial in the transition to low-carbon energy utilization. Liu Guohua mentioned that there are over 87,000 industrial parks in China, accounting for 30% of the country’s total carbon emissions. To achieve carbon neutrality goals, the Central Economic Work Conference in December 2024 explicitly proposed the establishment of a number of zero-carbon parks as a key task for 2025. With the introduction of various policies, 2025 is set to be a year of comprehensive construction for zero-carbon parks. On January 8, 2025, the National Development and Reform Commission and the Ministry of Finance issued a document encouraging large-scale equipment upgrades in industrial parks and clusters, with a focus on supporting the application of high-end, intelligent, and green equipment, providing concrete support and funding guarantees for upgrading facilities in zero-carbon parks.

Supported by favorable policies, zero-carbon parks are becoming a hot trend across various regions. Companies are beginning to form strategic partnerships to make significant strides in the zero-carbon park sector. For example, Huaxia Happiness (600340.SH) has announced a collaboration with Baobi New Energy to jointly explore “Industry + New Energy” business opportunities in the Middle East. Regarding the development of energy storage in zero-carbon parks by 2025, Liu Guohua has observed a few future trends: firstly, there will be an increase in integrated energy storage systems, with combined solar and energy storage microgrid solutions expected to exceed 60%; secondly, diverse business models are emerging, including shared energy storage leasing models, which, as energy storage prices decrease, could reduce initial investment costs by over 40%.