Major boost for energy storage industry! The state has clarified the capacity tariff mechanism for independent storage.

      The release of a policy is marking a new value scale for the energy storage industry. As the capacity tariff mechanism links the peaking and discharging capacity of storage to the national electricity price system for the first time, a market-oriented era for new energy storage is opening up. 

      The National Development and Reform Commission and the National Energy Administration recently jointly issued the "Notice on Improving the Capacity Tariff Mechanism for Power Generation" The focus of this document is the establishment of an independent new energy storage capacity tariff mechanism at the national level for the power grid side.

      The policy states that independent new energy storage power stations that serve the safety of the power system and do not participate in distribution and storage can be given capacity prices on the local coal-fired power capacity price standard, combined with the duration of discharge and the contribution to peak regulation. This means that the stable power supply capacity of energy storage power will receive direct economic returns. 

Core of the policy

      The release of this Notification reflects the need for transformation of the current power system. With new energy becoming an important type of installed power source in China, its randomness and volatility pose new challenges to the stability of the power grid. 

      The role of regulatory power sources becomes crucial—they ensure power supply when new energy is insufficient and reduce power generation when new energy is sufficient. And the main to undertake this task now is coal power, gas power, pumped storage and new energy storage.

      The "capacity price" is essentially a "guaranteed wage" system. The National Development and Reform Commission (NDRC) clearly pointed out in its that the mechanism aims to promote relevant power sources to generate and supply power during peak consumption times and give way to new energy sources during non-peak times through institutional arrangements.

      Previously, coal-fired power and pumped storage had already established a preliminary capacity tariff mechanism, but this policy breakthrough officially incorporated independent new energy storage into this and unified the varying gas-fired and new energy storage capacity tariff principles in different places, creating a fair competitive market environment.

Key mechanism

      Establish the independent new energy storage capacity tariff mechanism on the grid side according to the "Notice". For the independent new energy storage power stations the grid side that serve the safe operation of the power system and do not participate in distribution, various places can give capacity tariff. The capacity tariff level is based on the local coalfired power capacity tariff standard, and is converted according to a certain proportion according to the peak shaving capacity (the conversion ratio is the full-power continuous discharge duration divided by the net load peak duration of the whole year, and the maximum is not more than 1), and the construction progress of the power market and the demand of the power system are. 

      The design logic of this mechanism is clear and profound: it rewards the sustained peaking capacity that energy storage can provide during periods of tension in the power. The longer the discharge time, the greater the contribution to easing peak load pressure, and the higher the compensation received. At the same time, the policy requires that the list management be implemented for independently built new energy storage power stations on the grid side, with the specific project list to be formulated by the provincial energy authorities in conjunction with the price authorities, ensuring accuracy and standardization of compensation. 

Market connection

      The mechanism sets out the current capacity tariff mechanism but also maps out a more market-oriented route for the future. It mandates that local governments should orderly reliable capacity compensation mechanisms for generators after the continuous operation of the power spot market.

      "Reliable capacity" is defined as the capacity that the unit can continuously and stably supply power during the peak period of the system throughout the year, and is a unified "ruler" to measure the peak contribution of various power sources.

      The new compensation mechanism will cover coal-fired and gas-fired power plants that participate in the market independently and new energy storage that meets the conditions, gradually expand to other units such as pumped storage. The key principle is "to provide compensation fairly based on the 'scale' of reliable capacity, without distinguishing between types of units" After the mechanism is established, the relevant units will no longer implement the original capacity electricity price, achieving a deep connection with the power market. This is seen by the industry as a practice in mature power markets, which will promote fair competition among different types of technologies. 

Cost transmission

      A key issue is whether the increase in capacity fees will push up end-user electricity prices? To this, the NDRC gave a clear answer in its interpretation: it will have little impact on the cost of purchasing electricity for industrial and commercial users.

      The reason lies in the hedging effect of “one rise and one fall”. After the improvement of the capacity price mechanism, the cost recovered by regulating power through the electric energy market has decreased, while the cost recovered through the capacity price has increased, forming a hedging effect. 

      In addition, the policy also clarifies that the capacity tariff and reliable capacity compensation cost of the above-mentioned regulating power sources will be included in the local operation cost for recovery. For residential and agricultural users, the electricity price level remains unchanged, and the current catalogue sales electricity price policy is still implemented. 

Industry impact

      The new policies have a differentiated impact on different storage technology routes. Since the capacity price is directly linked to the “full-power continuous discharge duration, technology routes that can provide long-term stable discharge will gain significant economic advantages. For instance, vanadium redox flow battery and other flow battery technologies, which can independently design and capacity and are easy to achieve long-term storage of more than 4 hours or even tens of hours, will obtain a higher proportion of capacity price in the calculation formula.

      In addition, technologies with longer cycle life and higher safety are also more advantageous in addressing the possible strengthened capacity fee assessment in the future. The policy clearly states the capacity fee assessment method will be improved in conjunction with the management requirements for various types of units, guiding units to improve their operation level and peaking capacity.

Accompanying measures

      The notice is not an isolated policy, but is accompanied by a series of optimizations to the power market mechanism. One important point is: appropriately adjust the limit of the medium and long-term market transaction price of coal-fired power within the province. In view of the fact that the cost of coal-fired power that needs to recovered through the electric energy market has decreased after the capacity price has increased, various places can reasonably determine the lower limit of the transaction price according to the market supply and demand and variable cost of the unit, and no longer implement the stipulation that the base price is floating down by 20%. 

      In addition, policies encourage both supply and demand parties to sign flexible price mechanisms in medium- and long-term contracts, reflecting real-time supply and demand. The setting of fixed price contracts should not be mandated, which can be seen as an important step towards a more mature power market. 

      The establishment of the capacity tariff mechanism marks a key step in China's energy storage industry from "having or not" to "good or not". policies start paying for the peak discharge duration of energy storage, the choice of technology route for enterprises, the dispatching and operation mode of the power grid, and even the construction logic the entire new power system will be redefined.

      As the implementation details are gradually introduced, a technical competition centered around "discharge duration" and "peak capacity" is about to unfold. The outcome of competition will not only determine the market position of enterprises, but also profoundly impact the safety, low-carbon, and economic nature of the future power system.

About Us

       Sichuan Hualuguangdian Group Co., Ltd. was established in 2018, headquartered in Naxi District, Luzhou, Sichuan Province, and is a practitioner of the national "double carbon" strategy and a leading enterprise in the new energy field. The company takes "smart manufacturing of photovtaic storage   energy services" as its core strategy, building a full-industry chain layout covering photovoltaic EPC, vanadium redox flow battery system, and green power technology research and development, and has more than 30 core patents and international authoritative certifications (CE/CB/FCC/ROHS, etc.. 

       The company has established a vanadium battery energy storage scientific research laboratory in cooperation with scientific research teams and institutes from multiple universities, breaking through the technical of all-vanadium flow battery technology, achieving breakthroughs in more than 12-hour long-term energy storage, a cycle life of more than 20,00 times, and a system efficiency of more than 80%, and filling the industry's smart manufacturing blank. As a core member of the ecological circle of several central energy enterprises, the group has in-depth cooperation with several industry leaders, serving multiple central enterprise large-scale projects, creating a "device   platform   service" energy Internet of wind, solar, and storage, and providing strong technical support for the country to build a new power system. 

By 2026, the company aims to build the largest new energy equipment manufacturing base in southern China, further driving the restructuring of the global energy. With its advantages in technological innovation and a full industrial chain layout, Hua Lu Group has become the most growth-oriented new energy technology group in western China, injecting strong into the global energy transition and contributing to the achievement of the "dual carbon" goals.