SMM Analysis: Perspectives on the Cancellation of Mandatory Energy Storage Allocation Policy and Interpretation of Document No. 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 On-grid Tariffs to Promote High-quality Development of New Energy" (NDRC Price [2025] No. 136, referred to as "Document No. 136"), which explicitly abolished the mandatory energy storage allocation policy for new energy projects, marking the end of the administrative energy storage allocation mechanism that had lasted for nearly eight years. This policy aims to address industry pain points such as inefficient resource allocation, surging cost pressure on new energy enterprises, and the phenomenon of "building but not using" energy storage, and to promote the transformation of energy storage from "policy-driven" to "economically-driven." I. Industry Impact of Abolishing Mandatory Energy Storage Allocation In the short term, energy storage enterprises relying on policy subsidies will face order reductions and revenue pressure, with the demand for renewable energy ESS integration expected to drop by about 70%. However, in the long term, the policy will force the industry to return to its market-oriented nature, stimulating the endogenous motivation of energy storage through economic demands such as peak-valley price spread arbitrage and auxiliary service revenue. For example, industrial and commercial ESS in Zhejiang Province has already become economically viable due to a price spread of over 1.1 yuan/kWh, and user-side ESS may become a new growth pole. The abolition of the policy will accelerate the elimination of low-cost, low-quality capacity, promote the commercialization of long-duration energy storage (LDES) technologies such as sodium-ion batteries and flow batteries, and drive technological innovations such as grid-forming ESS. Top-tier enterprises like CATL are expected to consolidate their market position with technological advantages, while small and medium-sized enterprises relying on subsidies will face survival challenges. After the abolition of mandatory energy storage allocation, energy storage resources will be tilted towards regions with difficulties in new energy consumption, and will participate in the power spot market through standalone ESS power stations and shared energy storage models, optimizing system regulation capabilities. However, in the short term, it may exacerbate the curtailment of wind and PV power generation, requiring reliance on power grid flexibility transformation and market-based compensation mechanisms for transition. II. Core Mechanisms and Policy Coordination of Document No. 136 The document requires that new energy power be fully integrated into the market, with electricity prices formed through market transactions, and introduces a price spread settlement mechanism: existing projects will continue to use guaranteed electricity prices, while incremental projects will determine mechanism electricity prices through bidding to hedge against market volatility risks. This move not only stabilizes corporate revenue expectations but also guides resource optimization through price signals. The document emphasizes "prioritizing the dispatch of new-type energy storage" and "establishing a capacity compensation mechanism," promoting energy storage participation in the auxiliary service market and releasing diversified revenue spaces such as frequency regulation and standby. At the same time, it clarifies that mechanism electricity and green electricity certificate revenues will not be duplicated, avoiding policy arbitrage. Although the mandatory energy storage allocation has been abolished at the national level, local governments can still incentivize energy storage investment through electricity price mechanism optimization (such as expanding peak-valley price spreads) and capacity leasing subsidies. For example, Guangdong has explored a local standard of 10% capacity allocation for energy storage. Document No. 136 marks the transition of China's energy storage industry from extensive expansion to high-quality development. Recommendations: Enterprise level: Accelerate the layout of user-side ESS and virtual power plants, enhance power trading strategy capabilities, and respond to market-based electricity price fluctuations. Policy level: Improve long-term mechanisms such as capacity electricity prices and spot market rules, and promote the unification of energy storage technology standards and grid connection specifications. Technical level: Focus on breakthroughs in long-duration energy storage and system integration technologies to enhance the economic efficiency of the entire life cycle. The abolition of mandatory energy storage allocation does not negate the value of energy storage but reshapes the industry ecosystem through market mechanisms, providing sustainable support for the construction of a new power system. In the next decade, energy storage will move towards a higher-quality development stage driven by the deepening of the power market and technological innovation. Based on comprehensive market exchanges and views, SMM believes that the abolition of "mandatory allocation" may promote the energy storage industry to shift towards "optimal allocation." For the full year, the growth rate of energy storage system installations is expected to remain at around 20%. SMM New Energy Industry Research Department Cong Wang 021-51666838 Rui Ma 021-51595780 Disheng Feng 021-51666714 Yanlin Lyu 021-20707875 Zhicheng Zhou 021-51666711 Haohan Zhang 021-51666752 Zihan Wang 021-51666914 Jie Wang 021-51595902 Yang Xu 021-51666760 Bolin Chen 021-51666836