In the content shared in the previous issue, we interpreted the main applications and business models of current grid-side energy storage . In this issue, China exportsemi net will show you an important development direction of grid-side energy storage, namely independent energy storage power stations. , its commercial development, cost-benefit analysis, and case analysis of two independent energy storage power stations.
Independent energy storage power stations are the development trend of source-grid side energy storage: the identity of independent energy storage power station market entities is clear and the business model is emerging
Central government level: Determining the development direction of independent energy storage power stations
At present, the income channel of energy storage power stations on the power generation side is single. The National Development and Reform Commission and the Energy Bureau have repeatedly proposed to explore and promote independent energy storage models to give full play to the shared role of "one station, multiple uses" of energy storage power stations.
On the one hand, it is necessary to clarify the market dominant position of independent energy storage power stations. An independent energy storage power station refers to an independent energy storage power station that directly signs a grid-connected dispatch agreement with the power dispatching agency as an independent entity. It is not restricted by the access location, is included in the power grid-connected operation and auxiliary service management, and communicates with the power grid enterprises and related power generation companies according to its access location. Relevant parties such as enterprises or power users sign a contract to stipulate the rights and obligations of the energy storage power station42 . In December 2021, the National Energy Administration issued the "Measures for the Management of Electric Power Auxiliary Services" and the "Regulations on the Management of Power Grid-connected Operations" to confirm the development direction of new energy storage participating in auxiliary services. In May 2022, the National Development and Reform Commission and the Energy Administration issued the "Notice on Further Promoting New Energy Storage's Participation in the Electric Power Market and Dispatch Application", stating that "new energy storage that meets the requirements of relevant standards and regulations and power market operating agencies and has legal person status" Projects can be converted into independent energy storage and participate in the power market as independent entities." New energy storage projects that exist in the form of supporting construction are encouraged to choose to convert into independent energy storage. After the market subject status of independent energy storage was clarified, the independent energy storage business model was initially formed.
On the other hand, electric power ancillary services and market-oriented reforms continue to advance. At present, peak regulation and frequency regulation are the main areas where energy storage participates in power auxiliary services, and the costs related to ancillary services are borne by the power generation side, which restricts the sustainability of energy storage being compensated in the field of ancillary services. Making power auxiliary services paid and gradually allocated to users is an important direction of my country's power market reform. The "Guiding Opinions on Accelerating the Development of New Energy Storage" issued in July 2021 proposed that "the cost benefits of grid alternative energy storage facilities should be included in the recovery of transmission and distribution prices." If grid alternative energy storage can obtain income through power transmission and distribution prices, it will It greatly increases the certainty of related investment returns, thereby stimulating the development of alternative energy storage for the power grid. The "Measures for the Administration of Electric Power Auxiliary Services" released in December 2021 will expand the scope of entities providing ancillary services from power plants to include new energy storage entities; establish a sharing and sharing mechanism for user participation, and the compensation fees for power ancillary services will be borne by power generation enterprises and the market. All grid-connected entities, including electric power users, will share the burden. In June 2022, the National Development and Reform Commission and the Energy Bureau issued the "Notice on Further Promoting New Energy Storage's Participation in the Power Market and Dispatch Application" to accelerate the promotion of independent energy storage to participate in the power market to cooperate with power grid peak shaving.
Local government level: Detailed rules for independent energy storage’s participation in the market are being introduced one after another.
After the country determined the development direction of independent energy storage, several regional energy regulatory offices (referred to as "energy regulatory offices") in the Southern Region, East China Region, North China Region, and other provincial energy regulatory offices such as Jiangsu Province and Hubei Province issued relevant detailed rules for new energy storage to participate in the electricity auxiliary service market based on their own characteristics and the progress of electricity marketization.
Some provinces and cities have clarified the sources of auxiliary service fees. In March 2022, the Southern Regulatory Bureau of the National Energy Administration issued a notice on the public solicitation of opinions on the "Implementation Rules for the Management of Grid-connected Electric Power in the Southern Region" and the "Implementation Rules for the Management of Ancillary Electric Power Services in the Southern Region" (draft for comments), mentioning independent energy storage Scope of participation ancillary services and compensation standards. Guangdong has made it clear that the cost of ancillary services must be shared by all users. The "Guangdong Provincial Power Grid Enterprise Agency Power Purchase Implementation Plan (Trial)" issued in December 2021 43 proposes that the related costs of ancillary services should be shared by all industrial and commercial users. Energy storage, pumped hydro storage The cost of the power station is determined based on the actual monthly cost incurred by the power grid enterprise (Table 12). Guangdong Province has incorporated energy storage electricity prices into transmission and distribution prices and implemented market-based transactions, which is conducive to the healthy development of the energy storage industry.
Table 12 : Participation in auxiliary service policies for independent energy storage power stations in some provinces and cities
The scope of the ancillary services market has been further expanded. In December 2021, the "Implementation Rules for Shanxi Independent Energy Storage Power Stations to Participate in Primary Frequency Regulation Market Transactions (Trial) (Draft for Comments)" allowed energy storage power stations to obtain income by participating in the primary frequency regulation market. In May 2022, the Shanxi Energy Supervision Office issued a notice on the "Implementation Rules for Shanxi Electric Power Primary Frequency Regulation Market Transactions (Trial)". The frequency regulation market entities include power generation side grid-connected entities and new energy storage. In the future, it may become a trend for independent energy storage power stations to participate in frequency modulation auxiliary services, and the revenue channels of independent energy storage power stations are expected to further increase. In addition, in August 2022, the Yunnan Energy Supervision Office issued the "Yunnan Black Start Ancillary Service Market Transaction Rules (Draft for Comments)" 44. New energy power plants supporting energy storage and independent energy storage can participate independently after they have black start capabilities. Black Start Ancillary Services Market.
The capacity leasing revenue model is tested. In September 2022, the Shandong Provincial Energy Bureau issued a notice on "Several Measures to Promote the Healthy Development of New Energy Storage Demonstration Projects in Our Province", allowing the capacity of demonstration projects to be leased and used throughout the province, and to obtain capacity leasing income. The "Southern Regional Power Reserve Ancillary Service Market Transaction Rules (Draft for Comment)" allows energy storage power stations to participate in inter-provincial reserve market transactions as third-party ancillary service providers, expanding the sources of income for energy storage.
Income analysis of independent energy storage power stations
The participation of independent energy storage in auxiliary market services is the future development direction. Its revenue model is still being explored and the detailed rules need to be further implemented. Generally speaking, the income channels of independent energy storage power stations include capacity leasing income, capacity electricity price income, power spot trading income and ancillary service income.
- Participate in spot transactions in the electricity market to obtain spread arbitrage income
Energy storage participates in spot transactions in the electricity market mainly to earn electricity price difference income by charging when electricity prices are low and discharging when electricity prices are peak. The "Notice on Further Promoting the Participation of New Energy Storage in the Power Market and Dispatch Application" issued in May 2022 clarifies that the charging power of independent energy storage power stations will not bear the transmission and distribution price and government funds and surcharges. Prior to this, energy storage power stations were regarded as power users, and the electricity price payable included energy price, transmission and distribution price, capacity price, government funds and surcharges, corresponding taxes and fees, etc., and factors such as charging and discharging efficiency were also taken into consideration. This policy allowed participants to participate in spot electricity prices. The cost of energy storage power stations in the market has been reduced by 0.14 yuan/ kWh45 .
Shandong is the first province to allow independent energy storage to participate in the electricity spot market. In February 2022, three new energy storage power station demonstration projects, Haiyang Guodian Investment Energy Storage Technology, Huadian Tengzhou Xinyuan Thermal Power, and Three Gorges New Energy (Qingyun), completed registration at the Shandong Electric Power Trading Center and officially entered the electricity spot market. The three independent energy storage power stations act as market users when charging and purchase electricity directly from the spot market; when discharging, they act as power generation enterprises and sell electricity in the electricity spot market. Their corresponding charging power does not bear the transmission and distribution price, government funds and surcharges. The average daily settlement electricity bill of independent energy storage power stations in Shandong is 320,000 yuan, and the monthly settlement income is expected to reach 9-10 million yuan46. However, there are also uncertainties in spot market arbitrage, and changes in major peak and valley electricity prices may cause the actual price difference to be lower than expected.
- capacity compensation revenue
The capacity market is an important part of the power market system and aims to ensure the long-term capacity adequacy of the power system. Capacity electricity price revenue is an incentive mechanism that enables generating units to obtain stable income outside the electric energy market and ancillary service market. It can play a role in compensating fixed costs, stimulating power investment, and ensuring capacity supply. It has a wide range of effects in foreign power markets. Application 47 . The capacity compensation mechanism in most provinces in my country is still under study and formulation, and there is a lack of a unified, equal and stable energy storage capacity recovery mechanism.
In October 2021, the "North China Electric Power Peaking Capacity Market Operation Rules" was promulgated. It is the first domestic market to explore a new ancillary service market that uses capacity as a transaction type, and the main participants are coal-fired generating units48 . Shandong Province stipulates that 49 days before the operation of the capacity market , capacity compensation fees for coal-fired generating units participating in the electricity spot market will be collected from the user side to compensate for the fixed costs of coal-fired generating units participating in spot market transactions. The electricity price standard is tentatively set at 0.0991 per kilowatt hour. Yuan (including tax) 50 . According to a report from the Shandong Provincial Electric Power Regulation Center, in March 2022, the total capacity compensation cost of the four energy storage power stations was 13.48 million yuan (the installed capacity of the energy storage power stations are all 100MW/200MWh), and the annual compensation cost is approximately 300 yuan/kW, with income Relatively considerable. In September 2022, the Gansu Provincial Energy Supervision Office issued the "Interim Rules for the Operation of the Electric Power Auxiliary Service Market in Gansu Province" (Draft for Comments), stating that energy storage power stations above 10MW/2h can independently participate in peaking capacity market transactions, providing the basis for Energy storage has created a new revenue growth point of peaking capacity compensation. Gansu has opened the peaking capacity market for energy storage power stations for the first time nationwide, and the upper limit of the compensation standard for energy storage participating in the peaking capacity market is 300 yuan/MW/ day51 .
The initial exploration of the capacity market starts with coal-fired units (thermal power), and capacity market transactions are fully conducted through coal power, providing experience for new energy power generation resources to enter the capacity market and fully open the capacity market52 . It is a general trend for new energy power generation units to enter the capacity market, and they can obtain relatively stable profits.
- Capacity rental revenue
Capacity leasing refers to the leasing service of a certain capacity for new energy power stations such as wind power and photovoltaics. Independent energy storage power stations obtain rent, and new energy power stations can obtain allocated energy storage capacity through leasing to avoid increasing asset investment in self-built energy storage. Currently, Shandong Province allows the capacity of new energy storage demonstration projects to be leased and used throughout the province to obtain capacity leasing income. Capacity leasing fees are a stable source of income for independent energy storage builders. At present, Henan Province has issued guidance prices. It is recommended that the rental price of independent energy storage capacity in Henan Province is 200 yuan/kWh/year. New energy companies and shared energy storage project companies should sign long-term lease agreements or contracts of more than 10 years based on the current year’s rental reference price. Other provinces have not yet issued similar price recommendations53 . However, in actual operation, the rental fee is 250-350 yuan/kW/year (such as Shandong, Shaanxi, Hunan and other places). The annual income from capacity rental of a 100MW independent energy storage power station can reach 30 million yuan. At present, the capacity leasing of energy storage power stations has just started. It is mainly used to meet the distribution and storage requirements of new energy power stations, and is usually digested within the new energy power generation group. However, with the increase in new energy installed capacity and the improvement of energy storage revenue channels, the demand for capacity leasing will further increase.
- Ancillary services
Ancillary services in the power market mainly include peak shaving, frequency modulation, accident emergency and recovery services, etc. One is to participate in peak shaving and obtain peak shaving compensation. Peak shaving has been promoted nationwide, and many provinces and cities have introduced peak shaving compensation standards. Charging compensation is mainly based on peak shaving electricity, with prices ranging from 0.15 to 0.8 yuan/kWh (Table 13). The kilowatt- hour cost of lithium battery energy storage is about 0.6-0.8 yuan/kWh, which is about 3-4 times that of pumped hydro storage. Combined with the peak-shaving compensation in various places, the economics of energy storage peak-shaving needs to be further reduced before the cost can be revealed54 . Moreover, since peak shaving compensation standards are frequently revised, there is also uncertainty about whether energy storage can obtain sustained and stable income from peak shaving services. The second is to participate in FM services to obtain FM compensation. The amount of compensation for frequency modulation varies from province to province. Frequency modulation compensation is mainly based on frequency modulation mileage. Depending on the degree of the unit's response to AGC frequency modulation instructions, compensation is 0-15 yuan/MW. The current energy storage frequency modulation mileage cost is about 6.34-9.08 yuan/MW. Frequency modulation There is a certain profit margin. However, frequency regulation has the problem of limited market space. As the scale of energy storage increases, the profitability of energy storage frequency regulation will decline. The third is accident emergency and recovery services. Accident emergency and recovery services include black start 55 , stable shutdown, etc. Some southern provinces have begun to promote independent energy storage to participate in black start services, further broadening the benefits of independent energy storage. In March 2022, the Southern Energy Regulatory Bureau issued a notice that independent energy storage power stations in the southern region can be included in black-start auxiliary service compensation with reference to thermal power compensation standards after technical review by their affiliated power dispatching agencies and approval by the energy regulatory agency.
Table 13 : Example of income from 100MW/200MWh independent energy storage power station
Although there are many income channels for independent energy storage power stations, these channels have not been promoted nationwide, and are only being piloted in some provinces and cities. The income models of independent energy storage in different provinces and cities are slightly different (Table 14). Due to different market rules in different regions and the operating characteristics of energy storage itself, in most cases energy storage cannot obtain benefits from all channels, but can only obtain part of them at the same time. In areas where power spot trading is not carried out, peak shaving is the main method; in areas where power spot trading is carried out, "power spot trading price difference + capacity leasing" is the main method.
Table 14 : Income model of independent energy storage power stations in some provinces
my country's electricity market reform is gradually advancing. In November 2022, the National Energy Administration issued the "Basic Rules for the Electricity Spot Market (Draft for Comments)" and "Measures for the Supervision of the Electricity Spot Market (Draft for Comments)" to promote the participation of energy storage and others in the power industry. Spot market transactions, independent energy storage power stations are expected to participate in the power spot market in more regions. The ancillary service market is gradually opening up to independent energy storage. Independent energy storage power stations are broadening their revenue channels by participating in power ancillary services such as peak shaving and frequency regulation and capacity leasing. In the future, as the proportion of new energy power generation increases, the peak-to-trough price difference in the electricity spot market in some provinces is expected to continue to widen, thereby further increasing the profitability of energy storage projects and promoting the development of independent energy storage. According to CNESA statistics, independent energy storage will be close to 50% of the newly put into operation new energy storage installed capacity in 2022, becoming a trend in the development of new energy storage.
Case study of independent energy storage power station
Case 1: Shandong independent energy storage power station
Project introduction: Shandong is an early area that explores independent energy storage power stations to participate in spot transactions in the power market. Independent energy storage power stations have relatively many revenue channels, such as 100MW/200MWh lithium battery energy storage power stations (the current installed capacity of energy storage power stations is generally 100MW/ 200MWh) as an example for analysis.
Project cost: The lithium battery energy storage power station has an installed capacity of 100MW/200MWh and is equipped with a 5MW/10MWh energy storage system. The total investment is about 450 million yuan. Taking into account loans, operation and maintenance expenses, depreciation, etc., the average annual expenditure is about 50 million yuan.
Project income: The income of energy storage power stations comes from three aspects: First, income from participating in the power spot market. Assuming that the average charging price is 0.1 yuan/kWh, the average discharge price is 0.6 yuan/kWh, 300 charging and discharging times per year, and the system efficiency is calculated as 90%, the annual income can be approximately 20 million yuan56 . The second is capacity rental income. Calculated based on RMB 300/kW/year, assuming all can be leased, the annual leasing fee income will be RMB 30 million. The third is capacity compensation costs. The capacity electricity price is obtained according to the capacity, ensuring profitability and reserve spare units, with an income of about 6 million yuan.
According to calculations by the Shandong Electric Power Engineering Consulting Institute, assuming that the above three types of income can be obtained and remain unchanged, the power station will earn a cumulative income of approximately 56 million yuan throughout the year. With a financing cost of 4.65%, the project is expected to achieve a rate of return of 8%. However, the actual income of energy storage power stations is different57 . In June 2022, Shandong issued the "Notice on Further Implementing the Trial Operation of Shandong Electricity Spot Market Settlement in the Second Half of 2022", which adjusted the calculation method of the available capacity of energy storage. The capacity that energy storage power stations can obtain Compensation is reduced. In addition, this policy is only valid for five years. For energy storage power stations with a lifespan of usually 10 years, it is unknown whether they can receive compensation in the middle and later stages of operation.
Case 2: Minhang Independent Energy Storage Power Station in Qinghai Province
Project Introduction: The Minhang Independent Energy Storage Power Station is located in Qinghai Province. It is the first independent energy storage power station invested and constructed by a third party in China58 . The first phase of the project has an installed capacity of 32MW/64MWh and will be put into operation in November 2020. The power station is provided by Shanghai Electric Guoxuan New Energy Technology Co., Ltd. to provide the lithium iron phosphate battery energy storage system, and Shanghai Electric New Energy Co., Ltd. is the EPC general contractor. The energy storage power station is connected to the local power grid in Qinghai, which can effectively solve the problem of light and wind abandonment by new energy stations in surrounding areas.
Project cost: The project did not disclose the cost. The reference cost of the energy storage power station with an installed capacity of 100MW/200MWh is 450 million yuan, and the annual expenditure is about 50 million yuan. The total cost of the project is at least hundreds of millions of yuan, and the annual expenditure exceeds 10 million yuan.
Project income: The project income comes from two parts: First, as a peak shaving resource provider, it collects peak shaving income from the grid side. The annual peak shaving revenue is approximately 2.79 million yuan. The second is to share the subsidy income for power stations with new energy station owners. The annual subsidy income totals 6.81 million yuan, and energy storage power stations share part of it (Table 15).
Table 15 : Income of Minhang Energy Storage Power Station from July 2021 to August 2022
Judging from the income and expenditure of the Minhang Energy Storage Power Station, the current income of the Minhang Energy Storage Power Station is not enough to support the annual operating expenses and has not achieved profitability. In October 2022, Gansu Province issued a document to encourage energy storage power stations to participate in peaking capacity market transactions in an independent capacity, creating a new revenue channel for energy storage. Qinghai Province is also actively exploring further enriching the application scenarios of independent energy storage power stations. As the probability of independent energy storage power stations participating in power spot market transactions increases, and the breadth and depth of participation in the power auxiliary service market increases, revenue channels are expected to be further expanded. Economic efficiency is expected to improve.
42 Shared energy storage power station: The power station resources do not belong exclusively to a certain new energy station or power grid. Instead, the power grid is used as a link to integrate the independent and dispersed grid-side, power-side, and user-side energy storage power station resources and provide unified and coordinated services to the grid. All new energy stations in the country will promote the full release of energy storage capabilities at all ends of the source, grid and load. Independent energy storage and shared energy storage power stations are commonly understood in the industry. "Implementation Rules for Grid-connected Operation and Management of Shanxi Energy Storage Power Stations" soliciting opinions, Shanxi Energy Supervision Office, October 28, 2022
With the implementation of the 45 New Deal, the average cost of charging 1 kilowatt hour of energy storage power stations has dropped by 0.14 yuan, Polaris Energy Storage Network, June 9, 2022
46 Guan Li et al., Analysis on the participation of independent energy storage power stations in the power spot market mechanism and trial operation, "China Electric Power" Issue 10, 2022
47 Chen Zheng et al., How to solve the energy "impossible triangle" coordination problem by reconstructing the capacity market mechanism? "Power Grid Technology" Issue 1, 2021
48 Peak-shaving capacity is to explore the payment for peak-shaving ability on the basis of the current peak-shaving ancillary service market which only pays for the peak-shaving effect.
49 The capacity market aims to ensure the long-term capacity adequacy of the power system. my country has not yet established a complete power generation capacity adequacy guarantee mechanism. Judging from international experience, there are four main mechanisms to ensure the adequacy of power generation capacity in a market-oriented environment: scarcity pricing mechanism, strategic reserve mechanism, capacity cost compensation mechanism, and capacity market mechanism. According to the research of State Grid, my country should adopt a capacity compensation mechanism in the early stage, and a capacity market should be established as soon as possible after the power spot market and financial market are relatively complete.
51 Gansu Energy Supervision Office, "Interim Rules for the Operation of the Electric Power Auxiliary Services Market in Gansu Province (Draft for Comments)", September 21, 2022
52 Sun Qixing et al., Capacity market mechanism design to adapt to China’s current power market environment, "China Electric Power", 2022, 55(8)
55 Black start refers to the service of restoring system power supply provided by generating units with self-starting capabilities or pumped hydro energy storage, new energy storage, etc., after a large-scale power outage in the power system without external power supply support.
Report source: KPMG analysis
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