[SMM Analysis] Analysis of the Cancellation of Mandatory Energy Storage Allocation Policy & Interpretation of Document 136

On February 9, 2025, the National Development and Reform Commission (NDRC) and the National Energy Administration jointly issued the "Notice on Deepening the Market-oriented Reform of New Energy Feed-in Tariffs to Promote High-quality Development of New Energy" (NDRC Price [2025] No. 136, hereinafter referred to as "Circular No. 136"), which explicitly cancels the mandatory energy storage policy for new energy projects. This marks the exit of the administrative energy storage mechanism, which has been in place for nearly eight years, from the historical stage. The policy aims to address industry pain points such as inefficient resource allocation, a sharp increase in cost pressures for new energy enterprises, and the phenomenon of "built but not used" energy storage, and to promote the transition of energy storage from "policy-driven" to "economy-driven."

I. Industry Impact of the Cancellation of Mandatory Energy Storage

In the short term, energy storage companies that rely on policy subsidies will face reduced orders and revenue pressures, with the demand for new energy storage expected to decline by about 70%. However, in the long run, the policy will force the industry to return to its market-oriented essence, stimulating the intrinsic motivation of energy storage through economic demands such as peak-valley price arbitrage and ancillary service revenues. For example, in Zhejiang, commercial and industrial energy storage has already become economically viable due to a price difference of more than 1.1 yuan per kilowatt-hour. User-side energy storage may become a new growth pole.

The cancellation of the policy will accelerate the elimination of low-quality and low-cost production capacity, promoting the commercialization of long-duration energy storage technologies such as sodium-ion batteries and flow batteries, and driving technological innovations like grid-forming energy storage. Leading companies like CATL, with their technological advantages, are expected to consolidate their market positions, while small and medium-sized enterprises that rely on subsidies will face survival challenges.

After the cancellation of mandatory energy storage, energy storage resources will be tilted towards areas with difficulties in new energy consumption, and will participate in the electricity spot market through independent energy storage power stations and shared energy storage models, optimizing system regulation capabilities. However, in the short term, this may exacerbate the abandonment of wind and solar power, which will require a transition through grid flexibility upgrades and market-based compensation mechanisms.

II. Core Mechanisms of Circular No. 136 and Policy Synergy

The document requires that all new energy electricity be fully integrated into the market, with prices formed through market transactions, and introduces a differential settlement mechanism: existing projects will continue to use the guaranteed electricity prices, while incremental projects will determine their prices through bidding to hedge against market fluctuation risks. This move not only stabilizes the expected revenue of enterprises but also guides the optimal allocation of resources through price signals.

The document emphasizes "priority dispatch of new-type energy storage" and "establishment of a capacity compensation mechanism," promoting energy storage participation in ancillary service markets and releasing diverse revenue spaces such as frequency regulation and standby. It also clarifies that mechanism-based electricity and green certificate revenues will not be duplicated to avoid policy arbitrage.

Although the national level has cancelled the mandatory energy storage policy, local governments can still encourage energy storage investment through mechanisms such as optimizing electricity prices (e.g., expanding peak-valley price differences) and capacity leasing subsidies. For example, Guangdong has explored a local standard of 10% capacity energy storage.

Circular No. 136 marks the transition of China's energy storage industry from extensive expansion to high-quality development. Recommendations are as follows:

At the corporate level: Accelerate the layout of user-side energy storage and virtual power plants, enhance the ability to trade electricity, and cope with market-oriented electricity price fluctuations.

At the policy level: Improve long-term mechanisms such as capacity-based electricity prices and spot market rules, and promote the unification of energy storage technical standards and grid connection specifications.

At the technological level: Focus on breakthroughs in long-duration energy storage and system integration technologies to enhance economic viability over the entire life cycle.

The cancellation of mandatory energy storage does not negate the value of energy storage, but rather reshapes the industry ecosystem through market-oriented mechanisms to provide sustainable support for the construction of a new type of power system. Over the next decade, driven by the deepening of the electricity market and technological innovation, energy storage is expected to enter a higher-quality stage of development.

Based on market exchange views and opinions, SMM believes that the cancellation of "mandatory allocation" may more likely promote the energy storage industry to shift towards "optimal allocation." For the whole year, the expected growth rate of energy storage system installations is likely to be maintained at around 20%.

SMM New Energy Industry Research Department

Cong Wang 021-51666838

Xiaodan Yu 021-20707870

Rui Ma 021-51595780

Disheng Feng 021-51666714

Yujun Liu 021-20707895

Yanlin Lü 021-20707875

Zhicheng Zhou 021-51666711

Haohan Zhang 021-51666752

Zihan Wang 021-51666914

Xiaoxuan Ren 021-20707866

Jie Wang 021-51595902

Yang Xu 021-51666760

Boling Chen 021-51666836