A roller coaster ride for China's energy storage market in 2019 and beyond
Risks and opportunities co-exist in the industry
Wood Mackenzie expects China’s energy storage installations to grow fivefold over the next five years, reaching 2.9 GW/8.6 GWh in 2024.
After a bumper year in 2018, China’s energy storage deployment is now experiencing a slowdown. The market saw just 212 MW/228 MWh of front-of-the-meter (FTM) deployments through the first three quarters of 2019, a 36% decrease compared with the previous year. But with more FTM projects under construction and slated to deploy in Q4, Wood Mackenzie expects continued growth in 2019 and beyond if the government’s procurement plans remain on track.
The Competitive landscape in the front-of-meter segment dominated by China's SOE asset owners will begin to evolve next year.
The storage industry is still at an early stage of development and dominated by local players, especially state-owned utilities. As of Q3 this year, utilities controlled more than 90% of FTM assets nationwide due to their strong financial capabilities. By contrast, private developers are challenged to gain market share when facing high initial costs, complex technologies and lack of government subsidies. However, the landscape may start to change in 2020 as the State Grid Corporation of China (SGCC), one of the top players, recently decided to exit the FTM market for a short term for economic uncertainty reasons.
In selected provinces, storage owners are compensated for engaging in China’s ancillary services markets. Storage systems can participate either on a standalone basis or be paired with coal plants. Revenues from participating ancillary services markets are less than 1% of the total annual payment power generators receive from grid companies. As ancillary services markets in China are still regulated, the FTM segment will see continued growth if markets mature.
Storage systems are one of the solutions for renewables curtailment issues for Northern China's large installation base.
Another highlight is that the renewables-plus-storage market has been slowly picking up since Q4 2018. As more renewables plants have come online, curtailment issues have worsened in north and northwest China. As such, local governments have been approving storage pilot projects to ease curtailment and increase the share of renewables in generation.
Xinjiang autonomous region will see up to 500 MWh of pilots paired with utility solar plants this year and Tibet plans for longer battery duration of five hours. We expect the rising share of renewables and the phaseout of gas peakers will continue to drive renewables-plus-storage market growth in the next five years.
Power reliability is important to heavy electricity users, who will benefit from commercial and industrial (C&I) behind-the-meter storage.
The storage systems are installed along with distributed rooftop solar in industrial parks and population-dense urban areas. Due to recent energy pricing reforms, time-of-use rate mechanisms are being deployed in some areas. However, we expect uncertainty in power prices will expose peak-shaving revenue to risk for C&I users.
Wood Mackenzie expects the cumulative installed power capacity to surpass 12.5 GW by 2024, accounting for 20% of the global market share.
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