China scraps energy storage mandate for renewable energy plants

New renewable energy plants in China will no longer be required to build storage in order to secure development rights and grid connection.

Since introduced in 2022, policy mandates requiring solar and wind energy projects to include energy storage systems have been crucial in the acceleration of storage deployment in China. To date, more than 20 provinces have issued such mandates and some provincial governments have upped their mandatory ratios for energy storage projects to 20%, up from 10% a couple of years ago.

These requirements have helped mitigate renewables curtailment in China. However, they have also increased operational costs for renewable energy projects, and many project owners have reported low utilization rates of their storage systems. 

The new policy enacted last month and poised to go into effect on June 1 redefines the the way renewable energy plants in China are renumerated. It introduces CfD auctions for wind and solar projects opening the door for more market-driven pricing and potential price cannibalization.

Until now, renewable energy generators in China were compensated with a combination of a fixed payment based on the average price set by coal-fired power generators plus a small portion of market-based payments. However, with the rapid drop of renewable energy prices, this type of compensation is today seen as too generous.

“China’s new CfD model will be similar to the one in the UK with a strike price capped at the coal generation price. Renewables will be paid less, and all of this energy will go to the energy markets rather than a lot of it being paid on a fixed price offtake. This is a big change towards rationalization of renewables but hidden within that is a removal of the energy storage mandate,” George Hilton, research and analysis manager at S&P Global, tells ESS News.

Impact on global supply chain

S&P Global estimates that the storage mandate has driven between 50 and 75% of domestic demand. With China accounting for around 56% of the global energy storage demand in 2024, the impact of such a policy change will be massive.

“China was on-track to install over 60% of all utility scale storage globally in 2025 and so in the absence of further policy changes, about 45% of global demand has just been wiped away,” Hilton says.

The ripple effect on the global demand-supply balance will involve further downward pressure on energy storage prices. A broader base of cheaper suppliers will be looking to expand overseas, and this will push prices down. On the other hand, those with a strong foothold outside of China, such as Sungrow, will be less affected.

“What we can expect, and we are already seeing in recent procurements in the Middle East, are very low prices. These are prices in recent tenders in China plus export costs, amounting to between $70-80/kWh,” Hilton says. Beyond the Middle East, such low prices can be expected in Southeast Asia, Latin America, and to some extent in Europe.

Looking ahead, China might introduce a policy that would support storage more directly and restore the balance. In the short term, however, cooling of demand in China under the new policy framework is likely to be felt as of next year.

“The price paid right now is higher than the one generators will be able to secure after these changes are introduced so we are seeing a rush to get projects in by June 1,” Hilton says.

Without no mandate in place, energy storage systems will need to be traded on the electricity markets. However, making energy storage profitable on a market-based model is not an easy business in China today.

Beijing is targeting a unified national electricity market with prices determined by supply and demand by 2030. Today, however, there is only a limited number of provinces which have launched wholesale market operations, making some of the key revenue streams for energy storage, such as arbitrage, unavilable in most parts of the country.