Implementation of the Guiding Document 'No. 114' for Energy Storage Capacity Subsidies

To meet the needs of constructing a new-type power system, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Improving the Generation-side Capacity Pricing Mechanism" (NDRC Price [2026] No. 114) on January 30, 2026. This document marks the expansion of China's generation-side capacity pricing mechanism from coal power to diverse adjustable power sources. Notably, it establishes, for the first time at the national level, a capacity pricing mechanism for grid-side independent new energy storage. It stipulates that the compensation standard should be "based on the local coal power capacity price standard,converted according to the peak shaving capability at a certain ratio." The specific conversion ratio is defined as "the duration of full-power continuous discharge divided by the annual longest duration of net load peak, with a maximum value not exceeding 1."

I. Core Connotation of Capacity Price, Cost Allocation, and the Coal Power Benchmark

To understand this new policy, three fundamental questions must be clarified: what is being compensated, who bears the cost, and what is the compensation benchmark.

First, what does the capacity price compensate for? The document indicates that it compensates for "reliable capacity," defined as "the capacity that a generation unit can reliably and stably supply during the system's peak hours throughout the year." This is fundamentally different from the value of electrical energy. For energy storage, its value lies in acting as a "power-type" or "energy-type" reserve. During periods when the power system is most strained and likely to face electricity shortages, it can promptly release power to fill the gap, thereby ensuring power supply security and system stability. Therefore, the capacity price does not pay for the daily charging and discharging behavior of storage but for its provision of guaranteed and stable power supply capability.

Second, who bears the compensation cost, and how is it transmitted? Following the established coal power capacity pricing mechanism, the capacity charges for new energy storage will also be incorporated into the "system operation costs." According to the document, "the capacity charges and reliable capacity compensation fees for the aforementioned adjustable power sources shall be included in the local system operation costs." These costs will ultimately be mainly allocated to commercial and industrial users in proportion to their electricity consumption.

It is crucial to understand the key impact of "system operation costs": it is not an unlimited fund pool but rather the "ultimate payer" and a "practical constraint" for capacity subsidies. The total amount of funds in this pool (i.e., the total cost paid by the user-side for system reliability) is finite and aggregates the capacity costs of all adjustable power sources, including coal, gas, pumped hydro, and new energy storage. Consequently, it profoundly affects the implementation of energy storage capacity subsidies from two levels:

1. Determining the Fulfillment Capability of Subsidies: The total promised capacity subsidies for various power sources in a province cannot exceed the electricity bill affordability of local commercial and industrial users, i.e., the so-called "bearing capacity." Regions with stronger economic resilience on the user-side have a larger overall "system operation costs" pool, enabling them to set and fulfill higher subsidy standards. Conversely, subsidy space is constrained. This is the policy root of the industry saying "aiming for higher subsidies in provinces with greater bearing capacity."

2. Shaping Future Allocation Rules: Currently, costs are primarily allocated based on user electricity consumption. However, the policy direction is to gradually shift towards allocation based on the guaranteed grid capacity occupied (i.e., connected capacity or maximum demand). This shift will more fairly reflect the principle of "whoever occupies more system resources pays more." Simultaneously, it will make it easier to reasonably price and transmit the value of energy storage projects capable of providing high-power, long-duration peak shaving, giving them a more prominent advantage in obtaining capacity subsidies.

Third, why use the coal power capacity price as the benchmark? Coal power is currently the most predominant and reliable baseload and regulating power source in China's power system. Its capacity price standard forms the "anchor" for measuring system capacity value. Linking new energy storage compensation to it essentially places power sources of different technological routes on the same value scale for measurement. The state requires that starting from 2026, all regions recover no less than 50% of coal power's fixed costs through the capacity price mechanism, with some provinces increasing this proportion based on their own circumstances. Therefore, the higher the coal power capacity price level in a region, the higher the theoretical upper limit for new energy storage capacity compensation. However, this ultimately still needs to pass the "bearing capacity" test of the "system operation costs" to be realized.

II. Interpretation of the Core Formula: How is the Conversion Ratio Calculated?

The core technical design of the new policy is the introduction of a conversion formula to quantify the peak contribution of energy storage:

R = t / T (where R ≤ 1)

• t (Duration of Full-Power Continuous Discharge): Refers to the total duration an energy storage station can discharge continuously at its rated power until its energy is depleted. It is determined by the station's rated energy (MWh) divided by its rated power (MW), representing its energy scale. For example, for a 100MW/400MWh station, t = 4 hours.

• T (Annual Longest Duration of Net Load Peak): This is key to understanding regional differences. It refers to the length of the period, among all times requiring peak power supply throughout the year, after deducting the output from uncontrollable power sources like wind and PV, during which the system's net load peak lasts the longest. It reflects the minimum continuous power supply time demand for stable power sources under the most extreme circumstances of a specific province's power system.

• Conversion Ratio R: This ratio measures the extent to which the energy scale of an energy storage station can meet the system's most severe period of demand. If t ≥ T, meaning the storage is sufficient to cover the entire critical deficit period, then R = 1, qualifying for full capacity recognition. If t < T, then R < 1, and its capacity value is discounted proportionally.

The policy logic behind this design is to achieve "payment for effectiveness." It precisely responds to the core demand of the power system: what is being purchased is not simple installed capacity, but effective peak capability at critical moments. The value of energy storage no longer depends on its nameplate parameters but on its match with the system's real needs. This mechanism directly creates a dual impact:

1. "Squeezing Effect" on Short-Duration Storage: For energy storage projects that can only discharge for 2-3 hours, their conversion ratio R will be much less than 1. This means the revenue they can obtain through the capacity price will be significantly reduced, posing a substantial challenge to their economic viability.

2. "Guidance and Incentive" for Long-Duration Storage: Through economic means, the policy explicitly encourages the construction of energy storage projects with larger energy scales that can independently support the system's critical deficit window. Only storage with t close to or greater than T can obtain near-full or full capacity compensation, which favors the development of long-duration energy storage technology from the revenue side.

III. Analysis of Regional Practice Differences: Understanding Local Power System Characteristics from the "Denominator"

Before the introduction of the national unified formula, exploratory policies in regions like Hubei, Gansu, Ningxia, and Hebei already contained similar conversion concepts. Their setting of different "denominators" (i.e., localized estimates of the system demand duration T) profoundly reflects the structural differences in regional power systems.