Transformations in China’s Energy Storage Market Ahead of the “531” Policy Milestone

The “531” milestone is approaching, bringing significant changes to the energy storage market. At the beginning of 2025, the release of Document No. 136 marked a new chapter for China’s new energy sector, entering a phase of intensive and in-depth policy adjustments aimed at accelerating the establishment of a new power system and promoting the marketization of new energy. The energy storage industry is experiencing a transformation from “policy dependence” to “value creation”. This evolution not only reshapes the fundamental logic of the energy storage sector but also fosters technological iterations, model innovations, and systemic restructuring.

Is a surge in installations on the horizon? On February 9, 2025, the National Development and Reform Commission and the National Energy Administration jointly issued a notice titled “Notice on Deepening Market Reform of Renewable Energy Grid Tariff to Promote High-Quality Development of New Energy” (commonly referred to as “Document No. 136”). This document clearly states that energy storage configuration cannot be a prerequisite for the approval, grid connection, and power generation of new renewable energy projects. This signifies the end of the strongly regulated era of energy storage, which had faced criticism for being built but not utilized effectively. Moreover, the notice emphasizes that all electricity from renewable energy sources will fully enter the power market, marking the beginning of a comprehensive marketization of renewable energy pricing, shifting the energy storage industry from being “policy-driven” to “market-driven”.

Effective June 1, 2025, the document establishes a transitional phase for renewable energy projects, distinguishing between old and new projects. Existing projects that start production before June 1, 2025, will still benefit from a guaranteed purchase mechanism, with electricity prices adhering to current policies (not exceeding the local coal-fired benchmark price). However, these projects must gradually enhance their competitiveness through equipment upgrades and actively participate in the market. In contrast, new projects that begin production on or after June 1, 2025, will predominantly engage in electricity market transactions, with prices determined through competitive bidding.

As a result, public opinion suggests that these policies will have two significant impacts on the energy storage market: first, the loss of policy support may cause short-term fluctuations in energy storage installations; second, in order to benefit from more favorable pricing policies and secure relatively stable returns, renewable energy companies are accelerating project construction to connect to the grid before the “531” milestone, which is driving a rush for installations.

Data from various organizations indicate that in the first quarter, new installations of advanced energy storage experienced a quarterly decline for the first time. However, according to the CESA Energy Storage Application Committee’s industrial database, the bidding market for energy storage and new installations continues to show a rapid growth trend. From January to April 2025, the bidding scale for domestic energy storage EPC/PC (including DC-side equipment), energy storage systems, and energy storage battery procurement reached 34.52 GW/125.6 GWh, marking a year-on-year increase of 156%. As of May 20, 2025, there were 487 newly connected energy storage projects in China, with a total installed capacity of 11.9 GW/32.32 GWh, representing a year-on-year growth of 70.98% in power and 76.9% in capacity. Among these, 62 grid-side storage projects were newly connected, totaling 6.34 GW/14.63 GWh, with power and capacity increases of 74.18% and 52.4%, respectively; while 76 generation-side connected projects totaled 4.15 GW/13.73 GWh, with power and capacity growth of 59% and 102.2%, respectively.

To secure revenue through differential pricing settlement and avoid risks associated with market fluctuations, project owners are placing numerous orders before the “531” milestone, resulting in a booming bidding market. Typically, energy storage projects have longer construction cycles, and the first quarter is not usually a peak delivery period. Therefore, the observed decline in installations by some organizations is considered a normal occurrence. Generally, the second quarter and the latter half of the year are expected to see concentrated deliveries of energy storage projects, indicating that the rapid growth of new installations in the energy storage market will remain a significant trend this year.

Several regions are implementing supporting measures for Document No. 136. It is believed that this document fundamentally restructures the development logic of the energy storage industry and serves as a crucial turning point for the electricity market’s entry into a trading phase. Consequently, local supportive measures are particularly important. Since May, as the vanguard of China’s power reform and the development of new energy storage, Shandong and Guangdong have released detailed implementation documents, while Guangxi has also circulated draft guidelines. This indicates that the marketization reform of renewable energy is entering a new phase at the local level, providing a reference for subsequent policies in other provinces.

Shandong was the first province to publicly release the implementation details of Document No. 136. The policy highlights include enhancing the electricity market mechanism to directly increase energy storage revenues. Shandong aims to have wind, solar, and other renewable energies fully participate in the electricity market by the end of 2025, with competitive bidding organized in principle in June 2025. To promote the sustainable and healthy development of new energy storage, Shandong has implemented a series of measures beneficial to energy storage. On one hand, regarding the electricity pricing mechanism, it has appropriately loosened the price limits in the spot market, widening the price gap between charging and discharging. For existing projects (those starting production before May 31, 2025), the mechanism electricity price will be executed at a national upper limit of 0.3949 yuan/kWh, which is approximately 12.8% higher than the average spot price of renewable energy in 2024. Incremental projects (those starting production on or after June 1, 2025) will have their mechanism price determined through competitive bidding, with a declaration of sufficient capacity not lower than 125%, and the final price will be based on the highest bid among the selected projects. These measures directly enhance the revenue potential of energy storage in the electricity market.

On the other hand, the policy specifies that when independent energy storage delivers electricity to the grid, the corresponding charging electricity will not bear transmission and distribution prices or government funds and surcharges, significantly improving the profitability of energy storage stations. This strengthens the competitive edge of independent energy storage projects, which are highly valued in the market, and creates favorable conditions for attracting more investments.

The policy characteristics of Guangdong focus on promoting comprehensive market participation of new energy, providing potential space for the development of energy storage. The detailed regulations released by the province under Document No. 136 clearly state that starting June 1, 2025, all grid-connected electricity from renewable energy projects, including wind and solar, will fully enter the market, with prices determined through market transactions. Users can participate in various ways, such as self-reported quantities, aggregated bidding, or accepting prices. Although there are not many direct provisions regarding energy storage in Guangdong’s document, the full participation of renewable energy in the electricity market provides potential opportunities for energy storage development. With all grid-connected electricity from renewable sources entering the market, the volatility and intermittency of renewable energy generation will become more pronounced, and energy storage is expected to see increased market demand as an effective solution to these challenges. For instance, energy storage can store electricity during times of surplus generation and release it during shortages, ensuring a stable power supply and better meeting market demands for electricity stability.

According to the Southern Power Grid’s draft of the “Working Plan for New Energy Participation in the Electricity Spot Market (2025 Edition),” to implement the spirit of Document No. 136, five provinces in the South (Guangdong, Guangxi, Yunnan, Guizhou, and Hainan) will begin trial operations of long-term spot settlement starting June 2025, promoting the full participation of centralized and distributed renewable energy in the spot market. The operation of the spot market will enhance the sensitivity of electricity price signals, allowing energy storage to participate in trading and capitalize on price fluctuations, thereby creating favorable market conditions for energy storage development in Guangdong.

Recently, the draft implementation details of Document No. 136 in Guangxi have attracted considerable attention in the industry. According to the circulated information, Guangxi’s implementation plan differentiates between existing and new projects. The mechanism price for existing distributed renewable projects will be set at Guangxi’s coal-fired benchmark price of 0.4207 yuan/kWh and will encompass all mechanism electricity. The price for centralized renewable projects will be 0.324 yuan/kWh, as the electricity for 2025 has already been guaranteed through medium- to long-term contracts, with no extra mechanism electricity set. The proportion for new single projects to enter the mechanism electricity will not exceed 80%. Incremental projects will need to establish mechanism prices through competitive bidding every year, with the first bidding transaction set for 2025 for projects committed to production between June and December of that year. Bids will be ranked from low to high, with the final mechanism price typically reflecting the highest bid from selected projects, not exceeding the upper limit of 0.4207 yuan/kWh. The plan’s highlight is the establishment of a sustainable pricing and settlement mechanism for renewable energy, which standardizes the management of electricity prices and quantities for renewable projects. While there are no direct pricing support measures for energy storage in the document, a more regulated market environment for renewable energy projects benefits the synergistic development of energy storage and renewable energy.

However, on May 21, the Guangxi Development and Reform Commission refuted claims that a formal version of the “Document No. 136” implementation details had been submitted for approval. Despite the differing focuses of the three regions regarding Document No. 136, they all significantly impact the development of the energy storage industry. As these policies continue to be promoted and implemented, and as other provinces gradually follow suit, the energy storage industry is expected to grow robustly along the path of marketization, playing an increasingly important role in establishing a new power system.

In the context of energy transition, the value of energy storage is becoming more prominent. Only in a mature electricity spot market can the full, deep value of energy storage be realized. Shortly after the release of Document No. 136, the energy storage market welcomed another policy initiative, known as “Document No. 394,” which aims for basic nationwide coverage of the electricity spot market by the end of 2025, alongside comprehensive continuous settlement operations. This policy will leverage market pricing mechanisms to optimize the allocation of energy storage resources and accelerate the elimination of outdated capacities. While Document No. 136 and Document No. 394 appear independent, they are, in fact, complementary and collaborative. Both aim to advance electricity market reforms, promote high-quality development of new energy, assist in constructing a new power system, and facilitate the establishment of a unified national electricity market.

Document No. 136 focuses on innovating the pricing mechanism for renewable energy grid connection, clarifying policies for existing and new projects, and signaling the end of government pricing for renewable power generation. Document No. 394 emphasizes the construction of the electricity spot market, clarifying the operational timeline and promoting participation from user-side entities, while also outlining provisions for trading varieties and price transmission mechanisms, thus providing specific trading methods and market environments for renewable energy to enter the market. Together, they form a policy system for the marketization reform of renewable energy, with Document No. 136 ensuring the goals of marketization, and Document No. 394 providing flexibility in achieving those paths.

This policy combination will trigger deep shifts in the renewable energy industry chain, reshaping the ecosystem of the energy storage sector, user energy consumption patterns, and regional energy collaboration frameworks. Specifically, the accelerated construction of the electricity spot market will have three impacts on the energy storage industry. First, it will broaden revenue channels. The high-frequency price fluctuations in the spot market (such as intra-day or 15-minute trading) will significantly widen the gap between peak and valley prices, allowing energy storage to achieve arbitrage through “low charging and high discharging,” enhancing revenue potential. During extreme weather or tight supply-demand conditions, spot electricity prices may surge temporarily, enabling energy storage to capture profits during high-price periods. As the share of renewable energy increases, the demand from the grid for frequency modulation and backup services will surge, positioning energy storage as a core supplier due to its millisecond response characteristics, shifting the revenue model from “price arbitrage” to “service fees.” Policies require complementary capacity markets, allowing energy storage to secure fixed revenues by providing backup capacity. Policies also encourage green electricity to connect with the spot market, enabling energy storage to smooth out renewable energy generation curves, reduce deviation assessment costs, and participate in green electricity premium sharing.

Second, these policies will compel upgrades in energy storage technologies. With the trading cycle in the spot market shortened to 15 minutes, energy storage systems must exhibit faster response times and higher cycle lifetimes, presenting development opportunities for technologies such as flow batteries and flywheel energy storage. Energy storage operators need to combine AI algorithms to optimize charging and discharging strategies, for example, by automatically formulating energy storage operation plans based on predicted next-day electricity price curves.

Finally, these policies will drive innovation in energy storage business models. The policies clearly state that energy storage can participate in the market as an independent entity without being tied to power plants or users, promoting large-scale construction of independent, shared, and grid-side energy storage. Distributed energy storage can also aggregate through virtual power plants to participate in spot market bidding and demand-side response, enhancing economies of scale (for example, Jiangsu’s VPP pilot has already connected user-side storage). The traditional peak-valley arbitrage model for industrial and commercial storage is becoming increasingly unviable.

The impacts of the marketization driven by Document No. 136 and Document No. 394 are multifaceted, affecting industrial and commercial energy storage as well. In the past month, various provinces, including Jiangsu, Guizhou, and Sichuan, have intensively adjusted their time-of-use electricity pricing mechanisms, altering not only prices and time periods but also reconstructing the revenue models for distributed photovoltaic and energy storage projects. The peak-valley arbitrage model that industrial and commercial storage relied on is gradually losing viability, and the original investment logic is beginning to “collapse.” On April 30, Jiangsu’s Development and Reform Commission announced that starting June 1, 2025, time-of-use pricing would shift from “user electricity prices” to “user electricity purchase prices.” Although peak prices can rise by up to 80% while valley prices can drop by 65%, the actual peak-valley price difference has narrowed; for two-part users, the previous peak-valley price difference of over 0.85 yuan/kWh has shrunk to around 0.65 yuan/kWh, and the flat-valley difference has also decreased to less than 0.3 yuan/kWh, making the “two charges and two discharges” storage dispatch strategy increasingly difficult to support.

Additionally, introducing a midday valley period (11:00 AM – 1:00 PM) aims to guide users to consume electricity during peak solar generation hours. However, if energy storage charges during noon, it must sell electricity during higher-priced periods to be profitable, increasing project operational complexity and dispatch thresholds. In Sichuan, the new policy effective May 1 has introduced weather-dependent pricing. The summer peak period has been extended from 8 hours to 10 hours, and during July and August, peak pricing will be applied throughout the month (1:00 PM – 2:00 PM and 9:00 PM – 11:00 PM), while in other months, peak pricing will also be activated when there are three consecutive days of temperatures exceeding 35°C. This weather-dependent pricing mechanism forces energy storage operators to constantly monitor weather forecasts to adjust strategies.

Guizhou’s draft, released on May 16, directly revised the calculation method for peak-valley price differences, splitting the year into winter and non-winter periods, implementing different time-of-use pricing policies, and excluding four added costs from the floating commercial electricity price, which has further narrowed the peak-valley price difference. For example, in May, the 10 kV proxy purchase price showed a peak-valley price difference reduced by over 30% compared to the prior policy, now at only 0.48 yuan/kWh. The policy also adjusted peak-valley timings, limiting charging and discharging periods during non-winter months, further affecting arbitrage opportunities.

The policies across these three regions align with the inevitable choice in response to electricity market reforms and the demand for renewable energy consumption. These adjustments are pushing the industrial and commercial energy storage sector toward a “value-oriented” transformation, placing greater emphasis on demand management, comprehensive service capabilities, and diverse revenue models, such as participation in spot markets, power peak regulation, and virtual power plants.

The competition in energy storage technology is evolving toward a pragmatic approach. Document No. 136 has prompted the energy storage industry to transition from policy-driven to transaction-oriented, and the value of energy storage is being redefined. As a key element in reducing costs and increasing efficiency, competition in the field of large-capacity lithium-ion battery storage technology has entered a new phase, with product iterations becoming increasingly pragmatic and rational, focusing not just on capacity but also on cost, production lines, and process maturity. While the competitive landscape for the next generation of large-capacity storage cells is still being defined, leading cell and system manufacturers are starting to collaborate to seize control over the next generation of large-capacity cells, aiming to standardize large-capacity products and end the chaotic competition.

This year, leading companies have notably launched new products with immediate contracts and mass production upon release. For instance, the 392Ah energy storage cell and 6.25MWh liquid-cooled container system from Zhongchuang Innovation were announced for mass production and strategic partnerships on the day of their launch. Similarly, Chuangneng’s 472Ah battery signed strategic cooperation agreements with six companies on the day of its release. This trend indicates that leading companies are focusing on launching market-recognized and technically mature products rather than merely competing for attention with capacity. The evident Matthew effect in the market shows that leading companies advance product applications through deep binding strategies to capture market share.

In conclusion, the policy evolution from Document No. 136 to Document No. 394 signifies that the Chinese energy storage industry is undergoing profound changes from “administrative allocation” to “market allocation,” and from “single arbitrage” to “diversified value.” As these policies withdraw, safety regulations are tightening, with five departments jointly releasing a “Notice on Safety Management for Electrochemical Energy Storage,” requiring energy storage stations to be equipped with fire warning and firefighting systems, prohibiting the construction of energy storage stations in densely populated areas, and prompting regions like Jiangsu and Guangdong to enact strict safety regulations that promote industry development toward higher safety and longevity standards. This combination of “relaxation and tightening” in policies tests the adaptability of the energy storage industry like a roller coaster. Moving forward, as the spot market achieves full coverage and the standardization system is refined, energy storage will become a core hub of the new power system, playing an irreplaceable role in the energy transition. Enterprises must proactively adapt to changes in policies and markets, forge core competitiveness through technological innovation, build ecological moats through model innovation, and seize certainties amid market fluctuations.