CITIC SEC: Streamlining the energy storage price mechanism, domestic energy storage is expected to grow rapidly.

CITIC SEC released a research report stating that with the release of Document No. 136 by the National Development and Reform Commission, the energy storage industry is welcoming a new development model. According to CITIC SEC's calculations, energy storage projects are currently profitable in the spot market and ancillary services. Considering that the national government may introduce a capacity electricity price mechanism for energy storage and other regulatory resources, the certainty of energy storage project income will be greatly enhanced, which is of great significance for investment decisions of national state-owned enterprises and other clients. According to CITIC SEC's calculations, at a capacity electricity price level of 100 yuan/kW for energy storage, if the new installed capacity of energy storage maintains a growth rate of 30%, the impact on end-user electricity prices is only 1.19%, indicating the feasibility of energy storage capacity electricity price. CITIC SEC believes that after Document No. 136 canceled mandatory storage requirements, the energy storage industry transitioned from cost competition to value creation and is expected to optimize industry competition landscape. The leading companies in the energy storage industry chain are optimistic. CITIC SEC's key points are as follows: Historical review: From mandatory storage to independent storage, the commercial model of energy storage gradually established with the reform of the power market. On February 9, 2025, the National Development and Reform Commission, in conjunction with the National Energy Administration, issued Document No. 136 to promote the comprehensive entry of new energy into the power market and simultaneously cancel mandatory storage requirements for new energy projects. Under the new energy storage model, energy storage income mainly comes from absorbing abandoned wind and solar energy, and it is difficult to have dispatching rights. According to data from CEC Electric, the average equivalent charge and discharge times of new energy storage in 2024 were 177 times, resulting in poor project economics. Under the independent storage model, energy storage can obtain income from electricity, ancillary services, and potential capacity electricity prices, making the commercial model more diverse. We estimate that excluding financing loans and capacity electricity price income, the potential electricity income of typical domestic energy storage projects is expected to reach 0.35 yuan/kWh, with a corresponding project IRR of 4.1%, making it moderately attractive for investments. Profitability: Electricity, ancillary services income is relatively certain, and capacity electricity price is at the pilot stage. 1) Electricity: According to data from 17 Electric, in 2024, the price differences for spot electricity in Inner Mongolia, Shandong, Gansu, Shanxi, and Guangdong were 465/351/265/263/212 yuan/MWh respectively. From historical operating data, the price differences for spot electricity are fluctuating, but generally maintaining a difference of 0.3 yuan/Wh, and the average daily charge and discharge times are greater than 1. 2) Ancillary services: According to CHINA POWER Market Development Report, the national electricity ancillary services market fee was 40.25 billion yuan in 2024, with peak shaving/frequency regulation/standby/other costs being 33/6.9/2.9/0.3 billion yuan respectively. As the spot market is gradually developed, peak shaving will be gradually introduced, and frequency regulation, standby, and other services will become mainstream for energy storage in participating in ancillary services. 3) Capacity electricity price: Currently, provinces such as Inner Mongolia, Gansu, and Ningxia are exploring capacity compensation, with provinces like Inner Mongolia compensating at 0.35 yuan/kWh based on electricity output and provinces like Gansu compensating at 110/220 yuan/kW based on capacity, helping to recover fixed costs for energy storage and playing a positive role in demand for energy storage. Future outlook: Improve energy storage pricing mechanisms, optimistic about the gradual introduction of energy storage capacity electricity prices and other policies. 1) Spot market: According to the National Development and Reform Commission's "Guidelines for the Construction of Continuous Operation Regional Spot Electricity Markets," it encourages new types of energy storage and other entities to participate in spot market competition by "bidding and quoting," which will help improve the utilization rate of energy storage projects. 2) Capacity electricity price: On September 12, 2025, the National Development and Reform Commission and the Energy Administration issued a special action plan for the scale building of new types of energy storage (2025-2027), proposing to promote the improvement of capacity electricity price mechanisms for new types of energy storage and other regulatory resources, to provide reasonable compensation for reliable capacity in the power system. With the gradual launch of energy storage capacity electricity price pilots in various provinces and cities, we believe that the national-level capacity electricity price is likely to be introduced. According to our calculations, without leverage investment, if the capacity electricity price reaches 100 yuan/kW, the project IRR can be increased from 4.1% to 8.6%. As for the impact on end-user electricity prices, at a capacity electricity price level of 100 yuan/kW for energy storage, if the new installed capacity of energy storage maintains a growth rate of 30%, the impact on end-user electricity prices is only 1.19%, indicating the feasibility of energy storage capacity electricity price. Risk factors: Lower-than-expected demand for energy storage industry; unexpected changes in domestic and foreign policies; worsening of competition in the industry; high volatility in upstream raw material prices; and potential risks of intensified competition and deteriorating competition landscape. Investment strategy: With the release of Document No. 136 by the National Development and Reform Commission, the energy storage industry is embracing a new development model. According to our calculations, energy storage projects are currently profitable in the spot market and ancillary services. Considering that the national government may introduce a capacity electricity price mechanism for energy storage and other regulatory resources, the certainty of energy storage project income will be greatly enhanced, which is of great significance for investment decisions of national state-owned enterprises and other clients. According to our calculations, at a capacity electricity price level of 100 yuan/kW for energy storage, if the new installed capacity of energy storage maintains a growth rate of 30%, the impact on end-user electricity prices is only 1.19%, indicating the feasibility of energy storage capacity electricity price. We believe that after Document No. 136 canceled mandatory storage requirements, the energy storage industry transitioned from cost competition to value creation and is expected to optimize industry competition landscape. We are optimistic about the leading companies in the energy storage industry chain, including: 1) energy storage system integrators; 2) battery cell suppliers; and 3) PCS suppliers.