What are the differences in the profit models of energy storage in China and America
By 2031, the global portable power station, Powerwall and other energy storage deployment will reach 500GW, and the United States and China will become the two largest markets for global energy storage, accounting for 75% of global demand. China’s energy storage market is still in its infancy. Although the introduction of policies has played a certain role in the construction of a market-oriented mechanism, the business model is not clear enough. By comparing the policy economy of the two energy storage markets, we can see the future development of China’s energy storage market trend.
Energy storage will continue to be popular in 2023
Next to the large-scale photovoltaic and wind power bases, large-scale “charging treasures” in the shape of containers have landed one after another, providing new energy power with the service of “charging at low valleys and discharging at peak times”. While energy storage is playing an increasingly important role, energy storage construction is also in full swing.
It is estimated that by 2031, the global energy storage deployment will reach 500GW, and the United States and China will become the two major markets for global energy storage, accounting for 75% of global demand.
In 2022, the installed capacity of US energy storage in Q1-Q3 will increase by 100% year-on-year. Although the new installed capacity of photovoltaics will slow down in 2022, energy storage will still maintain rapid growth. It is predicted that the annual market capacity in the United States will reach 27GW in 2031, and 83% will be used for utility-scale storage.
In China, according to statistics, the newly installed capacity of new energy storage in 2021 will be 3.4GW, and the cumulative installed capacity will be 5.73GW, a year-on-year increase of 74.7%. In 2022, the newly installed capacity of new energy storage in H1 will reach 12.7GW, which is 3.7 times the newly installed capacity in 2021. Here is an article introducing 25 energy storage companies, if you are interested, you can check it out.
Since the release of energy storage-related policies, as of November 2022, 17 provinces and cities in China have announced cumulative energy storage deployment targets by 2025, totaling approximately 50GW.
As the benchmark market for global energy storage in the future, the energy storage market in China and the United States plays a leading role in the development of global energy storage. By comparing the policy economy of the two energy storage markets, analyzing the current and future policy ecological environment and business logic interpretation of the large storage market in China and the United States, we will gain an in-depth understanding of the future trends of the energy storage industry in China and the United States and investment opportunities in the industrial Chain.
Policies related to Chinese energy storage market
At this stage, China’s energy storage is mainly driven by policies. Under the guidance of the top-level policy design, the energy storage industry is gradually on the right track, which is mainly divided into three directions: mandatory storage and shared energy storage, market mechanism construction, and government subsidies.
Clarify the strategic positioning of the energy storage industry and determine the basic framework for market-oriented development. Determine the phased goals of the energy storage industry, technical solutions, application fields, and the development tone of diversified participants.
Mandatory storage and shared storage
After 2020, due to the establishment of dual carbon targets and the impact of high wind and solar installations on the power grid, many provinces have introduced policies to encourage and force power generation side allocation and storage, and the main body of energy storage investment will shift from the power grid side to the power side.
As of November 2022, at least 20 provincial-level administrative regions in China have clarified the allocation and storage ratio and duration requirements for new new energy power generation projects. The storage time is more than 2 hours. Among them, Xinjiang and Inner Mongolia have relatively high configuration requirements, reaching 25%, 4h and 15%, 4h respectively.
Although during the period from 2016 to 2021, the guidance of top-level policies made China’s energy storage market mechanism initially take shape, but the policies related to the energy storage profit model and market mechanism are still incomplete.For example, the identity of energy storage in the electricity market and the investment return mechanism are not clear enough, and the rules for energy storage’s participation in medium and long-term transactions, spot transactions, and other markets are not well designed, which to a certain extent affects the enthusiasm of market players to invest in construction.
Since China released relevant policies in June 2022, the economics of energy storage in China has improved.The main reason is that the registered capital pointed out that “the main body of the new energy storage market should be clarified, the transaction mechanism and technical standards for energy storage to participate in various power markets should be improved, the business model for energy storage development should be innovated, and the energy storage price formation mechanism should be clarified.” The original price mechanism of charging electricity is not clear, independent energy storage market participation and other issues.
In addition, shared energy storage policies have been introduced in various places, and the leased energy storage capacity can be clearly regarded as renewable energy energy storage quotas. The investment in multiple projects has been accelerated accordingly, and the exploration of energy storage marketization has entered the fast lane.
According to statistics, from January to October 2022, 231 independent energy storage projects have been launched, with a total scale of 34GW/70GWh, and 110 projects have entered the stage of EPC/equipment bidding, project construction and operation, with a scale of about 10.9GW /21.7GWh.
Market mechanism construction
According to the research report of Shenwan Hongyuan, based on top-level policies, independent energy storage can sign market contracts at different peak and valley periods for spot arbitrage. There are mainly two income models:
1.In areas where the electricity spot market has not been established, several provinces and cities such as Qinghai, Ningxia, and Hunan have introduced peak-shaving compensation standards for independent energy storage power stations. The income model of independent energy storage is mainly based on peak shaving compensation + capacity leasing.
2.In Shandong and other areas where the electricity spot market has been established, the independent energy storage revenue model is mainly based on spot market arbitrage + capacity leasing + capacity compensation.
Taking 100MW/200MWh independent energy storage as an example, under the current two business models of independent energy storage, the stable and predictable income can reach more than 40 million yuan per year.
In addition to independent energy storage power stations, the high economy of user-side energy storage has also begun to emerge.At this stage, user-side energy storage benefits include user electricity bill management benefits, peak-valley arbitrage benefits, frequency modulation benefits, and demand response benefits. Peak-to-valley price difference arbitrage is the main source of user-side energy storage revenue, which can account for 50-80% of energy storage revenue.
The report shows that, taking the 10MW/20MWh user-side energy storage in Zhejiang as an example, the IRR of the project can reach 8.52% under the condition of charging and discharging twice a day and participating in the auxiliary service of peak-shaving and valley-filling power.
At present, the basic rules of the spot market have been promulgated, and the power spot market is accelerating. In the future policy scenario, user-side energy storage can also obtain benefits from participating in the spot market, independently participating in the ancillary service market to obtain compensation benefits, participating in the carbon trading market, and adjusting energy storage in the real-time electricity price environment. Energy storage mode to obtain income, etc.
At present, 3 provinces and 10 prefectures and cities have made it clear that they will subsidize energy storage projects through local finance.
Qinghai Province provides an operating subsidy of 0.10 yuan/(k W h) to the provincial power grid electricity sold by self-generated and self-storage facilities in the “new energy + energy storage” and “hydropower + new energy + energy storage” projects (according to the provincial industry and For projects identified by the Department of Information Technology as using more than 60% of the energy storage batteries produced in the province, on the basis of the above subsidies, an additional 0.05 yuan/(kW·h) subsidy) will be added for a subsidy period of 2 years.
Zhejiang Province provides capacity compensation for peak shaving projects (the annual utilization hours are not less than 600 h), and the compensation standard decreases year by year. W·year), 170 yuan / (k W · year) retreat).
The energy storage policy of the the United States
Under the derivation of various demands such as stable power supply and increased grid reliability, the US federal and state levels have introduced multiple energy storage incentives and energy storage marketization policies to form a federal-to-state energy storage policy matrix to jointly promote the development of energy storage.
In 2008, the federal government began to provide institutional guarantees for energy storage to enter the electric energy wholesale market. In 2013, it proposed that transmission network operators can choose to directly purchase auxiliary services from third parties and clarify the settlement mechanism for electric energy storage to provide auxiliary services. In 2018, the Federal Energy Regulatory Commission (FERC) issued Act No. 841 to lower the threshold for energy storage to participate in the frequency modulation auxiliary service market.
Overall, U.S. energy storage development policies are mainly divided into two categories: financial and tax support and development planning, and market mechanism construction.
Financial and tax support and development planning
17 states led by California, Nevada, and Florida have introduced a clear energy storage subsidy system. Among them, California’s Self-Generation Incentive Program (SGIP) policy subsidies are strong and last for a long time, becoming the first in the United States The core engine of energy storage installed capacity growth.
In 2020, Nevada released the NV energy storage incentive policy. This policy proposes a non-household energy storage subsidy of up to US$0.5 per watt-hour. The support is strong and the economics of non-household energy storage have been greatly improved.
In August 2022, the United States passed the “Inflation Reduction Act” (IRA) bill, which for the first time included independent energy storage in the scope of the US federal Investment Tax Credit (ITC). Before the introduction of the IRA bill, photovoltaic power generation and its distribution storage projects in the United States generally enjoyed a 30% ITC tax exemption, that is, 30% of the value-added tax generated by the refund of investment, but energy storage must be paired with photovoltaics to enjoy ITC subsidies.
With the implementation of the IRA bill, independent energy storage is included in the scope of ITC tax credit subsidies, and the dependence of energy storage installations on photovoltaics will be greatly reduced, which will promote the rapid growth of the US energy storage market.
In addition, the IRA Act extends the validity period of the ITC subsidy to 2033 and divides the credit into basic credit + additional credit. Among them, the basic credit amount has increased from the previous 26% to 30%, which was previously declining year by year. For large-scale storage projects that meet certain conditions, the tax credit ratio will increase to 30%-70% from 2023 (basic credit 30% + additional credit 10%-40%).
Construction of market mechanism
Since 2007, in order to promote energy storage to participate in the electricity market, the United States has repeatedly improved the electricity market trading mechanism. From the FERC890 Act to the FERC841 Act, the United States has made it clear that energy storage can participate in the wholesale power market competition with other pre-meter market players, allowing energy storage to fairly participate in various ancillary service market bidding competitions, bringing a broader market space for energy storage .
At present, sources of income for energy storage in the United States include: spot power market arbitrage, ancillary service markets, and capacity electricity prices, among which spot power market arbitrage will become the main revenue model.For example, in the general energy scenario, independent energy storage power stations can participate in peak-valley arbitrage; in the renewable energy scenario of “solar energy storage integration” scenario, distribution energy storage helps photovoltaics realize energy time transfer and sell when the price is high for higher income.
According to the data, nearly 60% of installed utility-scale energy storage will be used for peak-valley arbitrage by 2021, up from 17% in 2019.
In California, which has the largest installed capacity of energy storage, the strategy of buying low and selling high plays a leading role. In 2021, more than 80% of the newly added battery energy storage in California’s independent system operator service field will be used for peak-valley arbitrage.For example, the morning peak-to-valley spread in California rose from $15/MWh in 2020 to $50/MWh in 2Q22, and the evening peak-to-trough spread rose from $50/MWh in 2020 to $100/MWh in 2Q22.
According to estimates, if the initial investment cost of energy storage in the United States is US$0.40/Wh, the initial investment cost of a single 100MW/400MWh energy storage project will be US$160 million. Considering the three incomes of capacity electricity price + spot market price difference + ancillary services, the annual income of the project It is about 23 million US dollars, considering the daily maintenance cost, the static investment period is 7-8 years, and the economy is already relatively prominent.
Another noteworthy benefit is that there is a positive linear relationship between the allocation and storage ratio of new energy projects in the United States and the PPA premium. A higher allocation and storage ratio will result in a higher PPA premium, and the premium will also account for a higher proportion of the total PPA price. .
PPA (Power Purchase Agreement) is a power purchase agreement, mainly referring to a renewable energy power purchase agreement. It is an agreement signed between a renewable energy power generation company and a power consumer company, agreeing that the buyer will purchase a certain amount of renewable energy power at an agreed fixed price within a certain period of time.
According to statistics: the average PPA premium of allocation storage (50%+4h) projects is $10/MWh, and the allocation storage premium accounts for 30-50% of the total PPA price. Among them, areas with high renewable energy penetration rate have higher premiums and have certain economic benefits. sex.
For example: Since 2022 in California, the allocation and storage ratio of new photovoltaic projects will be about 30%, and the PPA electricity price premium will exceed 20%. Since 2020, with the rise in electricity prices, the PPA allocation and storage premium has also shown an upward trend.
The differences in energy storage policies between China and America
Both the United States and China’s policies in terms of fiscal and taxation support, development planning, and market mechanisms have effectively promoted the further growth of energy storage. Although China started late and grew rapidly in scale, there are some similar characteristics and respective advantages in terms of policies.
From the perspective of US policy alone, the ITC policy has a significant effect on promoting energy storage, which is conducive to the adoption of incentive policies at the initial stage of high energy storage costs and low investment economics, and is suitable for household energy storage and cutting-edge demonstrations Research on energy storage technology.
Compared with China, the current subsidy policy for energy storage is less, and it is an incentive policy adopted on a small scale. The subsidy period is generally 2 to 3 years, and the time is relatively short.
market mechanism and profit model
Most of the energy storage in the U.S. is located in well-developed areas of the electricity market, fully participating in market competition, and diversifying business models to effectively meet the needs of power supply reliability improvement, peak regulation and frequency regulation, and new energy consumption.
In contrast, China’s electricity market is not yet perfect, and the profit method is relatively simple. In the case of participating in peak-valley arbitrage, it is impossible to participate in other markets such as ancillary services, which limits the benefits of energy storage. For some small-scale energy storage, the benefits brought by participating in the market cannot recover the construction and renovation costs. Users are less motivated to invest in energy storage, and the flexible adjustment function of energy storage cannot be fully utilized.
power development layout
In recent years, the United States has basically maintained a trend of large-scale development and high-proportion access to clean energy such as wind and light. Under this environment, household energy storage has also developed to a certain extent, and it can also bring certain benefits to users.