Electrochemical energy storage industry: a strategic choice that needs to be solved urgently

Energy storage investors and power plants adopt a compensation profit sharing model with an uncertain share ratio. Some adopt the same share ratio during the contract period, while others adopt a share ratio inverted in two stages after the investment cost is recovered. Before the investment is recovered, most projects adopt a profit mechanism of 70% to 80% for investors and 20% to 30% for power plants. Energy storage projects that entered the joint frequency regulation market early on can significantly improve the Kp value due to the fast and effective energy storage regulation, and the single frequency regulation price is 15 yuan/MW higher, with obvious benefits. A 9MW/4.5MWh project can generate daily income of about 70,000 yuan and an estimated annual income of 20 million yuan. At that time, the cost of 30-40 million yuan was recovered in 2 years. However, soon after the market was actually running, the frequency regulation unit price was repeatedly lowered to a common 5 yuan/MW.

Since the cost of this model is shared by all power generation companies according to the actual grid electricity charges, it is a zero-sum game between power generation companies. If all thermal power companies in the region install energy storage to improve response, profitability will be greatly reduced. Moreover, from the experience of the PJM regional market in the United States and the British market, although the commercialization of frequency regulation services is relatively high and the initial market returns are good, the market space is actually relatively small, with an optimal capacity ceiling. It will be saturated to a certain extent, and the price of frequency regulation will continue to decline.

After one to two years of trials in Shanxi, Guangdong and other places, the competition pattern of "too many monks and too little porridge" has intensified in this market with limited capacity. In addition, because of the requirement of rapid charging and discharging in a short period of time, a large charge and discharge rate is required when using electrochemical energy storage, which will reduce the life of the battery and thus affect its long-term economic efficiency. This market is gradually turning from a blue ocean to a red ocean. The situation of recovering investment in 2 to 4 years is gradually fading away, and the investment risk is gradually increasing. The differentiated strategy of this scenario needs to be dynamically adjusted.

Reactive power support

Reactive power support refers to the regulation of transmission voltage by injecting or absorbing reactive power on the transmission and distribution lines. With the assistance of dynamic inverters, communication and control equipment, batteries adjust the voltage of transmission and distribution lines by frequently adjusting the reactive power output. This is also a power-type electrochemical energy storage application. Since it belongs to the grid-side scenario, after the introduction of the transmission and distribution cost regulations, whether to implement this differentiated application needs to be combined with the assessment requirements of the power supply voltage quality and compared with other reactive power support methods for marginal costs.

Focus on strategy for the future

Generally speaking, cost leadership and differentiation strategies are applicable to the entire industry, while focus strategies revolve around specific goals. Using electrochemical energy storage to smooth voltage and frequency fluctuations and solve power quality problems for specific users is a typical focus strategy. For example, high value-added manufacturers such as chip processing are very sensitive to problems such as voltage and current changes or frequency deviations of production equipment during the production process due to extremely high product precision requirements. Even if different step-down transformers have been connected to ensure power supply safety, due to the nonlinearity of the power system load, there are still concerns that voltage increases, sudden drops, flickers and other problems will affect product quality. At this time, the millisecond response advantage of electrochemical energy storage can be brought into play, and electrochemical energy storage equipment can be installed in a targeted manner, so that such users can stabilize product quality and income by ensuring power quality, and the advantages of electrochemical energy storage can be applied.

Industry value chain strategy

Under the guidance of policies, it is also an industrial development strategy for electrochemical energy storage to carry out market-oriented innovation, create an industrial ecology, and give play to the agglomeration effect of the value chain. The introduction of incentive policies on the power generation side in Qinghai and Xinjiang is a recognition of the value of energy storage, a useful exploration of the application of energy storage in the field of renewable energy, and a good reference for the improvement of subsequent policies. In order to fully realize the benign transmission and consumption of new energy, it is also necessary to combine actual needs, establish a good coordination mechanism, and realize the multiple values ​​of the coordinated development of energy storage, power grids, and new energy sites, such as smooth output, load tracking, and improved adjustability, so as to strive for a win-win situation.

At present, the total amount of wind and solar power abandoned in the country from January to September was 16.08 billion kWh. In the absence of major improvements in transmission and consumption capacity, more than 50,000 MWh of energy storage can be configured, which still has a lot of room for development compared with the current scale. In addition, on the user side, it is difficult to realize the value of electrochemical energy storage in traditional demand management, microgrids, integrated energy services, etc. through a single energy storage facility. Under the background of "Internet +", energy storage has solved the asynchrony of energy production and consumption, making energy transferable in time and space. It is the core component of the energy Internet. By using blockchain technology, the value of data resources can be fully explored, and combined with the renewable energy consumption guarantee mechanism and demand-side management, it is possible to consider actively exploring new business models such as photovoltaic storage and charging cooperation, energy trusteeship, and financial leasing, further segmenting the market, and forming coordinated benefits through functional complementarity and precise customization.

Energy storage is an indispensable and important part of the future power market and will play an important role in many scenarios. At present, the key factor affecting the development of the energy storage market is still the lack of economic competitiveness of energy storage projects themselves. From an economic perspective, the development of the energy storage industry requires national subsidies, but from the logic of subsidies, subsidies for new energy vehicles and subsidies for new energy projects such as wind and light have all declined sharply, and it is difficult to achieve subsidies for energy storage. The economic feasibility of energy storage projects depends on the development of energy storage technology, the further reduction of equipment costs, and the establishment of a reasonable pricing mechanism to quantify the value achieved by energy storage applications and restore the true commodity attributes of energy storage in the market. This requires the design of reasonable and feasible market rules for various energy storage application scenarios, with the help of Internet technology, blockchain technology and other emerging network technologies, and full and in-depth research on incentive and constraint policies that are constantly being updated, exploring new models, new businesses, and new solutions to provide support for promoting the healthy development of energy storage.

In short, electrochemical energy storage is at an industrial turning point. Only by seizing the opportunity and choosing the right strategy can we navigate the Darwinian ocean of industrial development.

This article was published in the November 2019 issue of China Electric Power Enterprise Management. The author works for Shenneng Co., Ltd.