Summary of the policy’s main content: farewell to “compulsory allocation” and release market vitality
1. End the “compulsory storage” duty
Under the new policy regulations, energy storage arrangement will not be a prerequisite for approval of new energy projects, grid connection and Internet connectivity. The “compulsory allocation” policy implemented since 2017 in most areas has officially come to an end. The reform aims to enhance the energy storage resource allocation by using market-oriented mechanisms to avoid inefficient allocation of resources through administrative intervention.
2. Promote full marketization of new energy
Reform of electricity price formulation mechanism: Since June 1, 2025, the on-grid price of newly operational new energy incremental projects will be determined by market competition instead of the previous fixed electricity price mechanism, meaning future price volatility will become the norm.
For new stock projects ordered before June 1, 2025, the existing tariff policy will continue.
New projects will be required to determine the price of electricity through competitive bidding, and implement a differential settlement system in order to gain an acceptable level of revenue.
Short-term impact and challenges: Demand for energy storage experiences periodic adjustments
1. Slowing demand: Decreased policy-driven
In the past, the majority of regions required new wind power and solar power generation projects to configure energy storage plants in a certain proportion to solve the intermittence of new energy production. However, with the data in 2024 showing that about 74.6% of the new domestic energy storage capacity is caused by the compulsory storage policy, the demand for energy storage can be lowered due to policy easing in the short term after the cancellation of the policy. This could remove momentum from some energy storage projects simply for compliance and could result in some decline in orders in the near term, especially for policy-dependent small companies.
2. “Take the tide” to reduce near-term downward pressure
As the New Deal has made June 1, 2025 a “new and old demarcated” time node, the existing projects can also benefit from the dividend introduced by the current policy. Therefore, enterprises are able to advance the project declaration ahead of the deadline in order to benefit from the original policy dividend. There is potential that there will be a “energy storage rush” wave in the first half year of 2025, offsetting partly the reduction of demand because of policy change.
3. Greater competition among industries, survival of the fittest
The cancellation of the compulsory storage will promote the survival of the fittest phenomenon in the industry, and enterprises with outdated technology and poor cost control ability will face greater survival pressure. A pioneer enterprise such as Penghui Energy will further increase market share and improve the concentration of the industry with its technological advantage, scale effect and extensive experience in the market.
Long-term opportunity: market-driven mechanism ensures best possible allocation of energy storage
1. Demand for energy storage shifts from “passive” to “active”
The New Deal calls for individuals to invest in innovative energy projects in such a way that they will participate actively in electricity market trades, and accordingly the price of electricity is at the mercy of the market with the income prospect secured by differential settlement mechanism. It means energy storage facilities would not be imposed-policy assets, but the product of independent decision made according to market demand. The growth of energy storage demand has more incentive factors in the future:
– Peak Valley spread arbitrage: Optimize return through smart planning of energy storage use strategies.
– Ancillary services market: Provide flexible services such as peak regulation and frequency modulation to generate additional revenue.
2. Unleash energy storage potential at the power grid side and the user side
– On the grid side, with the increasing penetration of new energies, the grid is in ever greater need of flexible resources. Standalone-operated energy storage power plants are able to gain economic benefits by participating in auxiliary services such as peak regulation and frequency modulation, and the policy also encourages these projects to participate in the trading activities of the capacity market and spot market.
– On the user side, especially for industrial and commercial users, with the increasing price volatility, the economic value of user-side energy storage systems will be highlighted more and more, especially where electricity has large price gaps with energy storage systems, energy storage systems will be an important means to save electricity expenses.
3. Technological innovation and cost reduction become the key
Current costs of energy storage technology are still high, but as policy shifts to marketization, the entire industry needs to be reliant on economies of scale and technological innovation in order to reduce prices. For example, new technologies such as solid-state batteries and sodium-ion batteries are developing rapidly, and Penghui Energy will start mass production of solid-state batteries in 2026, and the sodium-ion battery energy density will achieve 150Wh/kg. Following further cost reduction, it will create new energy storage market space.
Conclusion: Short-term pain and long-term opportunity coexist
Short term will witness energy storage projects experience demand contraction for a while due to the repeal of mandatory storage policies, but the rush to load in the first half of 2025 and technological advancement will mitigate the negative impact to some extent. In the long term, the market-oriented reform will drive the energy storage industry from relying on policy preference to pursuing value creation, and help promote the application of efficient energy storage technology and enhance the power system’s flexibility. The actual effect of the policy change will largely depend on how much the electricity market mechanism will be enhanced, the speed of breakthrough in energy storage technology, and the speed of cost decline. As long as these elements mature at a gradual pace, the energy storage industry will not only fail to slow down, but will usher in a new phase of more quality growth.