The trend of the times! Looking at the Accumulation and Change of Domestic Energy Storage from the Evolution of Income Models of Independent Energy Storage Power Stations

The changes in domestic energy storage this year are first reflected in the rapid growth of demand. According to CNESA statistics, there were a total of 149 new energy storage projects (including planning, construction, and operation) in September, with a total scale of 13.1GW/35.1GWh, of which 12.9GW/34.5GWh were planned/under construction projects.
Among them, the grid side accounts for 64%, reaching 8.4GW/19.0GWh, all of which are independent energy storage. The proportion of user side industry and commerce is 98%. Independent energy storage accounts for over 60%, and the business model is widely recognized by the market, which is the trend. Industrial and commercial leading user side projects, with future incremental potential.
The average EPC price has remained at a high level of over 1.8 yuan/Wh for a long time, breaking through 2 yuan/Wh in September. The price has risen, and the profit space of the energy storage industry chain continues to increase. Economy promotes an increase in the unit price of independent energy storage. According to statistics, the average price of independent energy storage from July to September was 1.90, 2.04, and 1.98 yuan/Wh, which is about 0.3 to 0.4 yuan/Wh higher than the average price of mandatory new energy distribution and storage during the same period, opening up profit space for the industrial chain. In this article, we briefly introduce the independent energy storage revenue model and yield analysis based on the comprehensive information of EnergyTrend energy storage.
Independent energy storage revenue models can be divided into four types
Independent energy storage refers to an independent energy storage power station, whose independence is reflected in the ability to directly sign a grid connection scheduling agreement with the power dispatching agency as an independent entity, without being limited by location.
The independent energy storage revenue model can be roughly divided into four types: shared leasing, spot arbitrage, auxiliary services, and capacity electricity pricing.
Shared leasing
Shared energy storage is a commercial operation model in which a third party or manufacturer is responsible for investment, operation, and maintenance, and as the lessor leases the power and capacity of the energy storage system to the target user in the form of a commodity. It adheres to the principle of "whoever benefits pays" and collects rent from the lessee.
Users can enjoy the power of energy storage charging and discharging within the service period to meet their own energy supply needs, without the need to independently build energy storage power stations, significantly reducing the original capital investment, and fully considering the cost and reasonable benefits of energy storage construction.
Figure: Shared energy storage enables new energy owners to avoid one-time capital expenditures
Image source: CITIC Construction Investment
Figure: Centralized dispatching management of shared energy storage
For shared energy storage investors, capacity leasing fees are a stable source of income, generally ranging from 250 to 350 yuan/kW/year in China. For a 100MW shared energy storage power plant, capacity leasing fees can reach 25 to 35 million yuan/year.
Spot arbitrage
The Notice on Further Promoting the Participation of New Energy Storage in the Electricity Market and Dispatching Application issued by the National Development and Reform Commission and the Energy Administration also clearly states that if independent energy storage stations transmit electricity to the power grid, their corresponding charging electricity will not bear the transmission and distribution electricity price, government funds, and surcharges, reducing the electricity cost of energy storage stations by approximately 0.1 to 0.2 yuan/kWh. Policies will improve the economic efficiency of energy storage power stations and promote the rapid development of the domestic energy storage industry.
Figure: The spot market is divided into two markets: day-ahead and real-time (balanced) markets
Image source: CITIC Construction Investment
Shandong is the first province to independently store energy and enter the electricity spot market. According to the "Trading Rules for Shandong Province Electricity Spot Market (Trial) (2022 Trial Version V1.0)", independent energy storage stations can independently choose to participate in the frequency modulation market or the electric energy market. In the electric energy market, energy storage stations are "quoted without pricing", and priority is given to clearing under the conditions of meeting the safe and stable operation of the power grid and the consumption of new energy. In the frequency modulation market, energy storage power stations must compete with generator sets on the same platform.
The Shandong electricity spot market has a large price difference between peak and valley, creating greater profit space for independent energy storage power stations. Taking the daily data of the settlement and trial operation work in April as an example, the average price difference in the Shandong real-time power spot market is 932.15 yuan/MWh, with a high price difference of 1380 yuan/MWh* The low price difference was 439.93 yuan/MWh on April 4th. The phenomenon of high price differentials has created greater profit space for energy storage.
Taking April 4th as an example, when the price difference was low, the high electricity price appeared near the three time points of 6:00, 18:00, and 24:00, while the peak photovoltaic output remained around -80 yuan/MWh between 9:00 and 15:00. This means that on April 4th, when there is a low price difference in April, independent energy storage stations will store electricity during the peak photovoltaic output (9-15 hours) and release electricity between 17-19 hours, resulting in a revenue of over 300 yuan/MWh.
ancillary services 
In August 2021, the National Energy Administration officially issued the new version of the "Regulations on the Management of Grid Connected Main Body Operations" and the "Management Measures for Auxiliary Services in the Power System" (referred to as the "Two Detailed Rules"), officially recognizing that new energy storage (including electrochemical, compressed air, flywheel, liquid flow, etc.) has an independent status as a grid connected main body, and that it is necessary to comply with relevant regulations on safe and stable operation, while also participating in the auxiliary service market to obtain profits.
In June 2022, the Southern Regulatory Bureau of the National Energy Administration issued a new version of the "Two Detailed Rules" for the southern region, incorporating independent energy storage power stations as new entities into the management of the "Two Detailed Rules" for the southern region, further improving the compensation standards for independent energy storage, improving the profit mechanism for independent energy storage, and raising the entry threshold for independent energy storage power stations.
At present, the common auxiliary services for new energy storage mainly include peak shaving and frequency modulation (including primary frequency modulation and secondary frequency modulation), with specific revenue limits varying from province to province. However, peak shaving mostly provides charging compensation based on peak shaving electricity, with prices ranging from 0.15 yuan/kWh (Shandong) to 0.8 yuan/kWh (Ningxia). And frequency modulation is mostly based on compensation according to the frequency modulation mileage, which compensates for frequency modulation compensation of 0.1-15 yuan/MW according to the amount of AGC frequency modulation command responded by the unit (PCS).
capacity payment 
At present, only after Shandong starts the trial operation of the spot market, the electrochemical energy storage capacity electricity price will be given according to the thermal power standards. The role of energy storage and backup thermal power in the system is similar, and there is great uncertainty in the utilization hours. It is difficult to maintain economic efficiency solely by relying on electricity prices, so capacity electricity prices are needed to "cover the bottom".
However, unlike pumped storage and thermal power plants, electrochemical power stations are convenient to construct and have excellent regulatory performance. The national policy direction is to push electrochemical energy storage as much as possible into the electricity market to profit, and capacity pricing is only a "bottom line" means of electrochemical energy storage revenue.
Yield analysis: can support project capital IRR8% -10%
Since the first project of independent (shared) energy storage was launched in Qinghai, it has undergone policy and practical exploration at the provincial and national levels in Shandong, Shanxi, Gansu, and other provinces. According to preliminary statistics, more than 14 provinces have implemented independent energy storage policies, with different income models, but there are no more than four categories: shared leasing, spot arbitrage, auxiliary services, and capacity electricity prices. We can take a look at the revenue models of Shandong and Shanxi.
Shandong: Pioneer in independent energy storage, spot+lease+capacity electricity pricing model
At present, Shandong independent energy storage power stations enjoy three revenue models: shared leasing, spot arbitrage, and capacity electricity price compensation. According to data from Shandong Electric Power Engineering Consulting Institute, under this model, the 100MW/200MWh independent energy storage power station is expected to receive spot arbitrage income of about 20 million yuan, shared lease income of about 30 million yuan, and capacity electricity price income of about 6 million yuan per year. On the basis of a total investment of approximately 450 million yuan and a financing cost of 4.65%, the project is expected to achieve a return on capital of over 8%.
Figure: Changes in Shandong's Independent Energy Storage Support Policy
Shanxi: First start the primary frequency modulation auxiliary service, with a high return rate
Shanxi is one of the first eight demonstration provinces for electricity spot trading in China. It has been trading in the electricity spot market since the end of 2018 and has been operating for three months in 2019 and 2020 respectively. Since April 1, 2021, it has been implementing the spot trading policy and is a pilot province with a long operating time for spot trading. After several years of operation, the spot trading market in Shanxi Province has gradually matured and policies have basically stabilized, with clear rules for independent energy storage to participate in spot trading.
Capacity electricity prices provide a "bottom line" for domestic independent energy storage projects, and multiple provinces, represented by Shandong, have made many beneficial explorations in the revenue mechanism and business model of independent energy storage. It is expected that the profit model of spot trading, shared leasing, auxiliary services, and capacity electricity pricing will permeate independent (shared) energy storage power stations nationwide.
The increasing enrichment of revenue mechanisms will significantly improve the profitability of independent energy storage projects. Only when energy storage projects achieve economic benefits can they create sufficient profit space and profit elasticity for the supply chain, ultimately leading to increased performance.