By Colleen Howe
BEIJING – Rows of seemingly narrow, white shipping containers stand in a barren field in China’s Shandong province.
Filled with batteries, they form a 795-megawatt power plant that can store up to 1 million kilowatt hours of electricity – enough to power 150,000 homes for a day. When it went online last Saturday, it was China’s largest storage facility of its kind.
The project, built by Lijin County Jinhui New Energy Co., is part of an explosion of energy storage development in China that requires even more investment in the sector to increase the share of renewable energy and remove bottlenecks in the grid.
While the government initiative has given a welcome boost to domestic battery giants such as CATL and BYD, some industry insiders and experts say pricing reforms and technological improvements are needed for a storage sector whose rapid growth has been hampered by low utilization and losses for operators.
“Most players in this sector are trying to figure out how to make money,” said Simeng Deng, senior analyst at Rystad Energy.
According to Carbon Brief, investment in grid-connected batteries in China rose 364 percent to 75 billion yuan ($11 billion) last year, creating by far the world’s largest storage fleet at 35.3 gigawatts in March.
In May, China set a new target of installing at least 40 GW of battery storage by the end of 2025 as part of a broader plan to reduce carbon emissions. That’s 33 percent more than the previous target.
When wind and solar farms produce more renewable electricity than the power grid’s distribution system can handle, or when they produce too little electricity due to a lack of sun or wind, storage is critical to balance supply and demand.
To achieve Beijing’s goals, local governments have required renewable energy power plants to build storage facilities, thus driving rapid capacity expansion.
However, heavily regulated electricity markets are finding it difficult to create incentives for use, especially for solar and wind power plants. The Chinese cabinet has therefore called for research into improving pricing mechanisms.
According to the China Electricity Council, energy storage units in renewable energy plants operated for only 2.18 hours per day last year, while standalone plants operated for only 2.61 hours per day. By comparison, storage units in industrial and commercial plants operated for 14.25 hours per day.
Political requirements requiring renewable energy plants to install storage have failed because they drive up project costs and the plants often remain unused, says Cosimo Ries, analyst at Trivium China.
“Because electricity prices are not flexible enough at different times, these projects simply cannot generate profits,” said Ries.
BIG CONSTRUCTION
The stakes are high for China, which is leading the world in adopting energy transition technologies, and for its battery giants, which are seeing stronger growth in batteries for storage than in automotive batteries amid slowing growth in electric vehicle sales.
While government mandates are a key driver of China’s storage boom, large electricity users such as industrial parks and electric vehicle charging stations are also driving usage. China, where 60% of all electric vehicles sold worldwide are, is concerned about the impact of electric vehicles on its power grid, and storage can help smooth out peaks in demand.
Falling battery prices are improving the economics of storage in China: According to consultancy Shanghai Metals Market, the cost of batteries used in standard energy storage will fall by about a fifth between the end of 2023 and mid-June.
In addition, the increasing adoption of “peak valley pricing”, which limits electricity consumption during peak hours by increasing prices, offers storage providers better opportunities to make a profit by selling stored electricity if they can charge more for it.
This has led to intraday price differences of up to 0.9 yuan per kilowatt hour in coastal provinces such as Guangdong, where the peak price of 1.1868 yuan/kilowatt hour is more than four times the lowest. This is enough to encourage the use of both battery and pumped storage power plants, says Alex Whitworth, head of Asia-Pacific energy research at Wood Mackenzie.
Pumped storage power plants are an established technology in China with over 60% higher capacity than battery storage, but are subject to geographical constraints and long lead times.
Further market reforms are needed to incentivize the use of battery storage, industry participants say. Storage operators are calling for wider use of capacity payments, similar to those designed to keep crisis-hit coal-fired power plants on the grid, with the costs borne by customers.
BETTER BATTERIES
Battery technology is also improving.
The massive new power plant in Shandong will be powered by both lithium-ion and vanadium redox flow batteries, according to a report in local state media. Vanadium is a newer technology that promises longer storage times and improved safety.
While the economics of lithium-ion batteries are expected to improve, experts say current technology is mostly only suitable for shorter storage times of four hours or less. Some say it is best suited to smaller applications. But fire risk remains a concern, especially with lower-quality batteries, experts say.
New technologies such as thermal energy storage, redox flow batteries and sodium-ion batteries have shown promise for longer-term storage, but have higher upfront costs and are not yet as mature in both technology and supply chains.
China is playing it safe by increasing the number of its pumped storage projects – which can take five to seven years to build – and promoting demonstration projects in new technologies.
(Reporting by Colleen Howe, additional reporting by Zhang Yan; editing by Lincoln Feast.)
