By Colleen Howe
BEIJING (Reuters) – Rows of what appear to be thin, white shipping containers are lined up on a barren stretch of land in China’s Shandong province.
The batteries together form a 795 megawatt (MW) power plant that can store up to 1 million kilowatt hours of electricity. That is enough to power 150,000 households for a day. When the plant was connected to the grid last Saturday, it became the largest storage facility in China.
The project, built by Lijin County Jinhui New Energy Co, is part of a boom in energy storage development in China, which calls for even more investment in the sector to boost renewable electricity and ease grid bottlenecks.
While the state-led move 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 plagued 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% last year to 75 billion yuan ($11 billion), creating the world’s largest storage park at 35.3 GW in March.
In May, China set a new target of installing at least 40 GW of battery storage by the end of 2025, up 33% from the previous target, which was part of a broader plan to reduce carbon emissions.
Storage is critical to balancing supply and demand when wind and solar farms produce more renewable electricity than the grid’s distribution system can handle, or when there is too little sun or wind and too little power is generated.
To meet Beijing’s targets, local governments have required renewable energy plants to build storage facilities, rapidly expanding capacity.
However, the highly regulated energy markets have struggled to stimulate their use, particularly in solar and wind power plants, prompting the Chinese government to call for research into improving pricing mechanisms.
Energy storage at renewable power plants operated for just 2.18 hours per day last year, while independent facilities operated for just 2.61 hours per day, according to the China Electricity Council. By comparison, storage at industrial and commercial plants operated for 14.25 hours per day.
According to Cosimo Ries, an analyst at Trivium China, policies requiring renewable energy plants to install storage have failed because they increase project costs and often go unused.
“Because energy prices are not flexible enough during different hours, these projects cannot really make money,” Ries said.
BIG CONSTRUCTION
The stakes are high for China, which is leading the world in adopting energy transition technology, and for China’s battery giants, which are seeing faster growth in storage batteries than in car batteries as electric vehicle sales growth slows.
While government mandates are a major driver of China’s storage boom, large power users like industrial parks and EV charging stations are also driving adoption. China, where 60% of the world’s electric vehicles are sold, is concerned about the effects of EVs on its power grid, and storage could help smooth out spikes in demand.
Falling battery prices are driving economic recovery for 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 late 2023 and mid-June.
Furthermore, the increasing adoption of peak-valley pricing discourages peak electricity consumption by raising prices, giving storage providers more opportunity to make a profit by selling stored energy when they can charge a higher price.
That has led to intraday price differences of as much as 0.9 yuan per kWh in coastal provinces like Guangdong, where the peak price of 1.1868 yuan/kWh is more than four times the lowest price. That’s enough to drive uptake of both battery and pumped hydro, said Alex Whitworth, head of Asia Pacific energy research at Wood Mackenzie.
Pumped hydro is an established technology with a capacity in China that is over 60% larger than battery storage. However, there are geographical limitations and lead times are long.
Investor returns on solar-plus-storage projects are also improving as solar panel prices fall, making renewables-plus-storage “financially viable in most parts of China” with internal rates of return that meet the minimum investment threshold of at least 8%, according to Pierre Lau, an analyst at Citi.
Industry players say further market reform is needed to boost battery storage. Storage operators want to see wider use of capacity payments, similar to those used to keep coal-fired power plants running in times of need, with the costs borne by customers.
BETTER BATTERIES
Battery technology is also improving.
The massive new Shandong plant will feature both lithium-ion and vanadium redox flow batteries, according to a report by 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 most current technology is suited for shorter storage durations of four hours or less, and some say it is best used in smaller-scale applications. Fire risk remains a concern, particularly with lower-quality batteries, experts say.
Emerging technologies such as thermal energy storage, redox flow batteries and sodium-ion batteries show promise for long-term storage, but come with higher upfront costs and the technology and supply chains are less developed.
China is hedging its risks by expanding the construction of more pumped hydroelectric power plants (which can take five to seven years to build) and encouraging demonstration projects of emerging technologies.
(Reporting by Colleen Howe, additional reporting by Zhang Yan and the Beijing news desk; editing by Lincoln Feast.)
