China’s Independent Energy Storage Sector Booms Despite Rising Losses

Since the National Development and Reform Commission eliminated the previous requirement for renewable energy projects to include storage facilities earlier this year, investment in independent energy storage projects across China has experienced a significant boom. Nonetheless, the business models for these projects remain uncertain, and some are already facing financial losses, according to industry insiders.

The defining characteristic of independent energy storage projects is that they operate independently from specific energy developments. Because they are not linked to particular renewable projects, these storage entities can forge direct grid connection and dispatch agreements with power authorities, and their connection points are not restricted.

Following the implementation of the new policy, the number of registered independent storage projects has skyrocketed. In Guangdong province alone, 178 such projects have received approval this year, nearly quadrupling the 47 projects approved throughout 2024, based on data from the provincial online investment project approval platform.

A major energy storage equipment manufacturer in Guangdong said the new policy has fully unlocked the potential of independent storage as a tool for power system regulation, creating a clearer and more attractive environment for investors.

“This year, independent energy storage projects are extremely popular,” he noted. His company’s inventory of battery cells is nearly depleted, and customer orders are often placed on short notice, with deliveries only possible after several months.

An executive from a battery cell manufacturer confirmed the supply shortage, stating that their manufacturing lines are operating at full capacity.

Prior to the new regulations, most independent storage companies primarily profited by leasing capacity to renewable power plants. Now, they also generate income through participation in electricity spot markets, providing frequency regulation and peak-shaving services for grid operators, and by receiving capacity subsidies from the government, industry insiders explained.

Uncertain Earnings

However, profitability remains highly uncertain, according to Du Xiaotian, chairman of the Electrical Energy Storage Alliance. The variation in policies and market regulations across different regions means that whether a project is profitable heavily depends on local authorities’ policies, market conditions, and the company’s ability to diversify revenue streams.

For example, in Inner Mongolia, the capacity compensation rate was CNY0.35 (about USD0.05) per kWh this year but will decrease to CNY0.28 per kWh next year, increasing the risk of fluctuating returns, Du explained. Similar financial losses have been reported by independent energy storage facilities in Guangdong, Guangxi Zhuang Autonomous Region, and central Hunan Province, among other regions.

“The profit model for these independent projects is still uncertain,” said a senior executive at a new energy storage firm. Even where regional policies clearly define capacity subsidies, relying solely on government support typically isn’t enough to cover investment costs. Owners must find additional revenue sources through spot market trading and other services.

In northwest China, the executive added, there are challenges with integrating renewable energy into the grid, and demand is insufficient. “Who are you going to sell the electricity to in that case?” he questioned.