The energy storage sector in China is experiencing rapid growth, with a surge in investment in grid-connected batteries last year. China currently leads the world in terms of storage fleet capacity, with a target of 40GW of battery storage installed by 2025. This growth is being driven by the need to balance supply and demand when renewable energy sources produce excess electricity. However, challenges such as low utilization and losses for operators have hindered the sector’s profitability.
Government mandates and big power users like industrial parks and EV charging stations are key drivers of the energy storage boom in China. Falling battery prices, coupled with the adoption of peak-valley pricing, are improving the economics of storage in the country. This has led to an increase in intraday price differentials, incentivizing the use of both battery and pumped hydro storage. Despite the geographical limitations and long lead times of pumped hydro, it remains a popular option due to its greater capacity.
Investor returns on solar-plus-storage projects are on the rise, with internal rates of return meeting the minimum investment hurdle rate of at least 8%. Further market reform is needed to incentivize battery storage, with the industry calling for wider use of capacity payments to support operators. The development of better battery technology is also crucial for the growth of the sector, with emerging technologies such as thermal energy storage, redox flow batteries, and sodium ion batteries showing promise for longer-duration storage.
The vast new energy storage plant in Shandong province features both lithium ion and vanadium redox flow batteries, with the latter promising longer storage times and improved safety. While the economics of lithium ion batteries are expected to improve, experts believe that current technology is best suited for shorter storage durations. Fire risk remains a concern, especially with lower-quality batteries. China is diversifying its storage options by increasing its pipeline of pumped hydro projects and supporting demonstration projects in emerging technologies.
Overall, the energy storage sector in China is experiencing rapid growth fueled by government mandates, falling battery prices, and increasing demand from big power users. Despite challenges such as low utilization rates and profitability issues, the sector is expected to continue expanding. With ongoing advancements in battery technology and market reforms to incentivize storage, China is well-positioned to meet its renewable energy targets and reduce carbon emissions.
