Transformative Changes in China’s Energy Storage Industry: Key Strategies for Future Planning

In 2025, the energy storage industry in China is undergoing significant changes following two major policy announcements. In February, the “Document No. 136” abolished the mandatory energy storage requirement that had been in place for eight years, paving the way for full market entry of renewable energy sources. Then, on April 2, the General Office of the Central Committee of the Communist Party of China and the State Council issued opinions on improving the pricing governance mechanism. This document emphasizes the need to enhance energy pricing policies that promote a green and low-carbon transition, establish a pricing mechanism for regulating resources like natural gas and energy storage, and optimize pricing for new energy transactions conducted locally. These two substantial policy shifts are expected to transform the energy storage sector’s development model, ushering it into a market-oriented era. The year 2025 is set to be pivotal for the energy storage industry, and local governments must quickly adapt their planning strategies to align with this new pace and propose innovative ideas.

1. Current Development of the Energy Storage Industry

The global energy storage sector has evolved through three main stages. Currently, the industry is transitioning from small-scale pilot projects to large-scale applications, with the development of electrochemical storage technologies expected to unlock significant growth potential. According to the “Medium-to-Long Term Development Plan for Pumped Storage (2021-2035),” the total installed capacity for pumped storage is projected to exceed 62 million kilowatts by 2025 and reach around 120 million kilowatts by 2030. Estimates suggest that by 2030, China’s total energy storage capacity could reach 321 GW in a conservative scenario or 431 GW in an ideal scenario. Regionally, energy storage enterprises in China are predominantly concentrated in central and eastern coastal areas, particularly in Guangdong, Jiangsu, Shandong, Zhejiang, Anhui, and Hunan, while other regions have relatively sparse distribution.

2. Adjustments in Local Government Strategies

With the introduction of the “Document No. 136” and various electricity market reforms, local governments are required to shift their approach to energy storage planning from “administrative dominance” to “market guidance and systemic synergy.” Here are specific adjustments and recommendations:

1. Planning Logic Adjustment: Transition from project-based energy storage requirements to a “system demand-driven” approach.
   • Reduce reliance on individual project energy storage quotas as prerequisites for approving renewable energy projects and instead focus on the overall flexibility needs of the regional power system, scientifically calculating the scale of energy storage deployment based on data such as renewable energy penetration rates and grid adjustment gaps.
   • Enhance grid-side energy storage coordination. Local governments can lead or guide the construction of centralized shared energy storage stations as regulatory hubs for regional grids, replacing scattered power-side storage to improve resource utilization efficiency.
2. Application Scenario Reconstruction: Move from dependence on power-side storage to multi-scenario collaboration.
   • Prioritize the development of grid-side and user-side energy storage. For the grid side, deploy energy storage at key nodes such as renewable energy transmission corridors and load centers to alleviate transmission bottlenecks and enhance absorption capacity. For the user side, encourage high-energy consumers like industrial parks and data centers to adopt energy storage, utilizing peak-load price differences and demand response models to lower electricity costs.
   • Explore innovative models for energy storage participation in the electricity market. Support energy storage companies in aggregating distributed resources to participate in Virtual Power Plant (VPP) operations; promote energy storage inclusion in frequency regulation, reserve, and other ancillary service markets with defined compensation mechanisms; and pilot long-term revenue models like energy storage capacity leasing and capacity compensation.
3. Industry Chain Layout: Shift from low-end capacity expansion to technology and ecosystem upgrades.
   • Differentiate technological routes based on local resource endowments and industrial foundations, selecting key technology directions (e.g., lithium batteries, flow batteries, compressed air storage). Resource-rich regions (e.g., lithium mines in Qinghai, vanadium-titanium resources in Inner Mongolia) should focus on lithium batteries and all-vanadium flow batteries; manufacturing hubs (e.g., Jiangsu, Fujian) should enhance midstream components such as battery cells and system integration; and application pioneers (e.g., Guangdong, Zhejiang) should concentrate on digital management and intelligent operations of energy storage systems.
   • Establish a comprehensive ecosystem encompassing research, manufacturing, and application by setting up energy storage innovation centers that collaborate with universities and enterprises to tackle cutting-edge technologies such as long-duration storage and sodium-ion batteries; create “zero-carbon industrial parks” and other application scenarios to attract upstream and downstream businesses.
4. Policy Tool Innovation: Transition from subsidy-driven support to market and financial empowerment.
   • Improve market-based revenue assurance mechanisms by formulating local time-of-use pricing policies to widen peak-load price differences; explore energy storage capacity pricing mechanisms to provide fixed compensation for projects offering reserve capacity.
   • Innovate financial support tools by establishing energy storage industrial funds that leverage government guidance to attract social capital; promote asset securitization (ABS) and leasing models to reduce investment thresholds; and pilot “energy storage insurance” to cover risks such as fire and performance degradation.
5. Regional Collaboration: Move from singular development to inter-regional synergy.
   • Facilitate cross-regional power market collaboration within integrated frameworks like the Yangtze River Delta and Jing-Jin-Ji, promoting cross-province scheduling and trading of energy storage resources; engage in the construction of a unified national electricity market to eliminate inter-provincial barriers.
   • Avoid homogenized competition between neighboring regions by achieving complementary industrial chains through models like “flying geese economy.”

3. Exemplary Learning Cases

Just before the national directive to halt mandatory energy storage requirements and promote the comprehensive market entry of renewable energy, Shanghai released the “Shanghai New Type Energy Storage Demonstration Leading Innovation Development Work Plan (2025-2030),” which outlines suitable strategies for current trends in marketization, independent energy storage development, innovative scenario cultivation, and revenue mechanism reform.

1. Five Demonstration Projects in Application Scenarios:
   • Independent Energy Storage Stations: Utilize existing energy power facility sites and access conditions to rationally plan and implement the construction of independent energy storage stations.
   • Vehicle-to-Grid (V2G) Demonstration: Accelerate the construction of V2G systems at charging stations, develop and optimize new intelligent energy storage aggregation systems, and enhance vehicle discharge functionalities.
   • New User-side Energy Storage: Focus on building new energy storage facilities in industrial parks, data centers, communication bases, and integrated solar charging stations.
   • Hydrogen-based Energy: Prioritize green methanol and green ammonia to ultimately establish four hydrogen-based energy bases in Lingang New Area, Jiading District, Chemical District, and Waigaoqiao Region.
   • Special Demonstration Scenarios: Encourage thermal power units to incorporate new energy storage; promote integrated energy storage and multi-energy complementarity in Lingang New Area; and advance the “renewable energy + energy storage” model in Chongming District.
2. Market Mechanism Innovations:
   • Facilitate new energy storage participation in the electricity market by allowing them to engage in spot trading. Thermal power units with integrated energy storage projects can participate in the electricity market alongside their affiliated generation projects, while user-side energy storage projects can engage in the market as part of their respective user entities.
   • Optimize revenue models for new energy storage, allowing independent energy storage stations to charge and discharge based on market demand; support thermal power units with integrated energy storage to provide ancillary services for revenue.
   • Support capacity leasing and sharing, enabling green electricity trading through capacity leasing mechanisms to acquire energy storage peak-shaving capabilities; support user-side energy storage projects in exploring shared storage and cloud storage business models.

Conclusion

The cancellation of mandatory energy storage requirements is not merely a policy withdrawal; it represents a release of market intrinsic dynamics through the removal of administrative constraints, triggering the collaborative evolution of technology, market, scenarios, and the industrial chain, ultimately forming a self-organizing ecosystem for the energy storage industry. From a governmental perspective, the policy adjustments signify a redistribution of renewable energy governance authority, prompting local governments to establish a new balance between ensuring power safety and unleashing market vitality. This shift necessitates a transition from being “project approvers” to “market rule designers,” facilitating a smooth transition of the energy storage industry from policy-driven to market-driven dynamics, and ultimately achieving a spiraling development of “technology supply, market absorption, and scenario innovation.”