Transitioning Energy Storage from Scale Expansion to Full Commercialization in China

Energy Storage Advances from Scale Expansion to Full Commercialization

As the design of new energy storage continues to improve, China is gradually establishing a robust policy framework for the industry’s development. From a global perspective, China’s leadership in the new energy storage sector is becoming increasingly prominent. In the context of the comprehensive marketization of new energy, the energy storage industry is transitioning from mere scale expansion to a phase focused on value creation.

In 2024, China not only solidified its leadership position in the global energy storage market but also made significant advancements in technology breakthroughs, installed capacity, policy innovation, and exploration of business models. Industry insiders believe that the Chinese energy storage sector is moving from large-scale industrial development, with some technologies leading internationally, toward autonomous industrial growth, with mature business models and a comprehensive commercialization.

For three consecutive years, China has topped the global charts for newly added installed capacity. In 2024, the country reported an impressive performance in its energy storage industry. The cumulative installed capacity of operational power storage projects reached 372.0 gigawatts, reflecting a year-on-year growth of 28.6%. The cumulative capacity of new energy storage reached 165.4 gigawatts, showing an 81.1% increase. Among these, lithium-ion batteries continue to grow rapidly, surpassing 100 gigawatts to reach 161.3 gigawatts.

As of the end of 2024, China has a cumulative installed capacity of 137.9 gigawatts for operational power storage projects, accounting for 37.1% of the global market. This achievement places China at the forefront for three consecutive years in newly added installed capacity. In the past year, Chinese companies signed overseas contracts exceeding 150 gigawatt-hours, with battery manufacturers, system integrators, and EPC service providers all contributing to the growth. Key markets for this overseas expansion include residential energy storage in Europe and solar parks in the Middle East.

Data from the Zhongguancun Energy Storage Industry Technology Alliance indicates that last year, China added 43.7 gigawatts / 109.8 gigawatt-hours of new energy storage capacity, marking a year-on-year growth rate of 126.5% and 147.5%. This surge has allowed the sector to surpass traditional pumped hydro storage, which stood at 58.5 gigawatts, and take the leading position. This shift not only demonstrates an accelerating technological iteration but also reflects the urgent need for a transformation in the energy structure.

“The rapid development of energy storage technology is driving market growth,” stated Chen Haisheng, Chairman of the Zhongguancun Energy Storage Industry Technology Alliance and Director of the Institute of Engineering Thermophysics at the Chinese Academy of Sciences. Various technological pathways, including solid-state lithium batteries, sodium batteries, compressed air storage, and flow batteries, are flourishing. China continues to lead the world in the number of published papers and patent applications related to energy storage. In 2024, the number of registered energy storage-related enterprises reached a new high, with rapid capacity expansion contrasting with declining product prices. This trend not only broadens application scenarios from centralized power plants to distributed commercial and residential areas but also injects significant momentum into the rapid development of the energy storage industry.

According to Shiyubo, Chairman of the China Energy Research Society, by the end of 2024, the cumulative installed capacity of new energy storage technology in China exceeded 70 gigawatts, which is more than double the figure from the previous year. The iteration speed of technologies like lithium batteries, flow batteries, and compressed air storage has accelerated, resulting in a 60% reduction in storage system costs compared to five years ago. Notably, China’s major energy storage technologies are generally on par with the latest global standards, and in some areas, China is even leading.

Market Mechanisms Begin to Realize Storage Value

In 2024, policies from the National Development and Reform Commission, the National Energy Administration, and local governments have been introduced in rapid succession, with a total of 770 new energy storage-related policies established throughout the year. A preliminary framework for the national unified electricity market, termed the “1+N” rule system, has been established, laying the foundation for a “unified market, coordinated operations” structure in the electricity market. As local electricity markets continue to improve, barriers for energy storage participation in the market are gradually lowering.

Chen Haisheng noted that the issuance of Document 136 has explicitly removed the requirement for energy storage to be a prerequisite for the grid connection of new energy projects, shifting policy direction from administrative mandates to economic incentives. Currently, more than 20 provinces are promoting new energy integration into the market, using time-of-use pricing and spot market price differential mechanisms to encourage the joint operation of “new energy + storage.” For instance, in Shandong, some projects have seen peak and valley arbitrage profits increase by over 30% after integrating photovoltaic storage, signaling that market mechanisms are starting to realize the value of energy storage.

However, the independent energy storage capacity compensation mechanism remains a challenging issue. While regions like Hebei and Zhejiang have attempted compensation based on installed capacity or discharge volume, existing policies have yet to achieve “equal treatment” with other flexible resources. Shandong has innovatively introduced a user-side shared capacity compensation model, providing pilot experiences for national institutional design. The industry consensus is that independent energy storage needs to achieve an economic closure through various revenue channels, including capacity leasing, auxiliary services, and spot market arbitrage.

Chen Haisheng further explained that the model of combined participation of new energy and energy storage in the market is beginning to take shape. Several provinces are guiding participants to sign time-of-use mid- and long-term contracts based on user-side time-of-use pricing, with expectations that photovoltaic storage will further enhance project profitability.

Creating Mature Business Models for Energy Storage

Despite significant achievements in the energy storage industry, several challenges remain. On the technical front, the limitations of lithium resources are accelerating the industrialization of sodium batteries, but their energy density and cycle life still require further enhancement. The potential for reducing costs in flow batteries depends on the domestic production of key materials.

In terms of market mechanisms, insufficient price volatility in the spot market, with typical differentials ranging between 0.2 and 0.3 yuan</b per kilowatt-hour, and the lack of a five-minute settlement mechanism, limit the arbitrage capabilities of energy storage. “These challenges require us to plan comprehensively from a global perspective and promote collaborative innovation with an open attitude, facilitating the transition of the energy storage industry from policy-driven to market-driven.” Chen Haisheng emphasized the need to explore mechanisms for negative pricing, five-minute settlement, coupling clearing mechanisms for spot energy and auxiliary service markets, and expanding price caps.