2020 will be a memorable year for many reasons. But for the Chinese renewable sector, it will be remembered as the beginning of a new market chapter.
Wind and solar developers begin to embrace battery storage. And the new “Renewable Plus Battery” model is here to stay.
Battery makers and the nascent battery storage sector is cheering for the change. However, the power sector is less enthusiastic.
The concern is understandable. China’s recent trend of “Renewable + Storage” is a direct result of a new regulation from Beijing. The policy requires power developers to take up the costs for building stable and grid-friendly renewable generation assets.
While battery remains an expansive option for energy storage, the long-term economics driver and the business model for “Renewable Plus Battery” remains to some serious exploration.
The First Offshore Wind + Storage Attempt
Last week, Shanghai Green Environmental Energy (上海绿色环保能源) concluded a deal with Aurorean Energy to jointly build an energy storage plant for Shanghai Fengxian offshore wind project, which is owned and developed by the State Grid affiliate.
The landmark deal marks China’s first attempt to combine offshore wind farm with energy storage.
However, the first project has arrived much earlier than our previous expectation.
As a “first-of-this-kind,” the project is meaningful at least in two ways:
- It would serve as the pathfinder regarding the economics of combining offshore wind and energy storage.
- The involvement of Aurorean Energy—a Hong Kong and Singaporean background firm—would test the water for foreign energy technology providers.
But more importantly, the project may herald the inevitable future: like it or not, wind and solar developers should be ready to embrace energy storage in their business cases.
Renewable + Battery: New Market Coming into Being
The offshore wind attempt highlights a larger trend happening in China’s renewable market:
The hybrid renewable solutions—where wind, solar and storage team up in one single plant—have been quickly emerging since late 2019. And that solution is likely to become the future norm of China’s renewable market.
In the first half of 2020, there were 33 solar/wind + battery storage projects announced, including
- 19 solar plus storage
- 14 wind plus storage projects
The total renewable power capacity of these projects have exceeded 2.1GW, with 386 MW storage capacity.
Battery storage (lithium-ion based, CFP and VFB) is the main solution in these projects, instead of the conventional method (pumped hydro).
Renewable Generation-side Demand now a Key Driver for Battery Storage
Notably, the generation-side battery storage projects now become the key driver of China’s energy storage market. The capacity of generation-side battery projects in 2020H1 alone is 58.6% of the total battery storage capacity kicked off last year (636.9MW).
These data signify the coming-into-being of a new and booming storage market, which was previously almost non-exist, with just a handful of projects built.
[Note: Previously, the grid operators had contributed to a demand spike for battery storage in early 2019, as they intend to build up grid-side storage capacity. But the new trend is only about generation-side energy storage.]
The Policy Driven Roadmap
The trend starts due to Beijing new renewable policy this year.
In May, the National Energy Administration issued the “Guiding Policy for Establishing a Long-term Effective Mechanism for Clean Energy Consumption” (关于建立健全清洁能源消纳长效机制的指导意见).
The policy aims to tackle China’s renewable curtailment issue by a basket of measures, as we mentioned in a previous review.
One of the key measures is to encourage energy storage—specifically, battery-based storage. the policy asks renewable projects to “optimize the power and storage ratio.”
The storage capacity is meant to:
- improve temporary renewable power absorption
- improve the “grid friendliness” of renewable power— in other words, the load-following flexibility of renewable assets.
Shifting the responsibility from the grid to renewable developers
Notably, the obligation to “construct the next-generation and grid-connection-friendly new energy plants,” is on the shoulder of the renewable developers—not solely on the grid operators any longer.
The new rhetorics is a shift from a previous belief that energy storage is mainly the responsibility of the grid.
Magnifying Effects of Local Rules
Before and after the central government policy, regional governments ramp up their efforts pushing for the “Renewable Plus Battery” future.
In the first six months, already 12 provinces have released policies “encouraging” wind and solar developers to build up matching battery energy units. To compare, from 2016-2019, there were only 5 of such policies were announced.
Local rulers are also more determined than before to push through their decisions. In 2020’s practices, “encouraging energy storage” often time means it is a rule that must to be followed. Developers have to embrace storage, if they intent to secure new approvals for their new renewable plans.
As a result, at least 13 power developers in China have announced “Renewable Plus Storage” programs.
Business Uncertainty Remains
The future ahead is bright for the nascent storage industry—and especially for the battery producers.
However, it is less of a rosy picture for renewable developers.
Although the cost has dropped significantly in the recent year, it still ranges from ¥0.6-0.8 per kilowatt-hour, which was prohibitively high compared to the cost of the conventional storage solution—pump hydro, at ¥0.21-0.25/kWh.
So far, investing in battery storage still means renewable developers need to accept a lower investment return rate—easily reduced by 0.5%.
As the renewable industry step into “zero-subsidy” zone, developers are embracing storage construction, as they are eager to secure project approvals from the local rulers—for now.
But without a clear economic motivation that works for a long run, whether the developers would continue to support the lower-yield business model remains to be seen.
The good news is, under the booming market scene, the cost of building battery storage units is likely to further decline.
This year, storage contractors begin to kick off drastic competition fighting for the cake. It is uncertain, however, whether the current cost is sustainable and whether quality issue may be awaits due to the price competition–too drastic and too soon.
(Energy Iceberg is soon to launch an exclusive information product tailored to investors who seek in-depth info of China’s Energy Storage market. Contact us for more information. )