China bids for storage supremacy
China has announced its intention to bet big on energy storage. The country’s National Development & Reform Commission has set a target of installing 30GW of new energy storage capacity by 2025.
- China plans to almost double storage capacity by 2025
- But lithium shortage could mean storage target is unrealistic
- Low wind and solar tariffs could discourage storage development
China has announced its intention to bet big on energy storage.
The country’s National Development & Reform Commission has set a target of installing 30GW of new energy storage capacity by 2025.
Considering China’s current storage capacity currently totals 35GW, this would represent almost a doubling of capacity in the next four years.
The extra capacity will consist of what it calls ‘new energy storage’, that is storage that uses electrochemical, compressed air, flywheel and super capacitor systems, rather than pumped hydro which makes up more than 90% of China’s existing storage capacity.
It’s difficult to fault China’s ambition when it comes to energy storage, but how realistic is the target?
One issue that could jeopardise China’s storage plans is a shortage of lithium, one of the key components of the lithium-ion batteries that are widely used in energy storage.
As we recently reported, in the longer term the lithium market is likely to be in “perpetual deficit”. This could pose a serious problem for China because, while it is the world’s largest consumer of lithium – accounting for 39% of global consumption – the bulk of it is imported.
However, there are clear signs that China is addressing this issue and beginning to establish a strong position in the global lithium market and becoming less reliant on imports.
Take the example of Chinese producer Ganfeng Lithium. The company’s share price has risen 98% in the last year, with the result that the business is now valued at $42bn, making it the largest lithium mining company in the world.
The buoyancy of China’s lithium industry is further illustrated by the fact that, in 2020, the country's lithium battery shipments were 143GWh, an increase of 22% on the year before. Meanwhile, with regard to the market outlook, the country's lithium battery market shipments are expected to reach 615GWh in 2025.
Struggling to capitalise
Chinese government policy is placing a greater emphasis on utilising domestic salt-lake lithium.
Earlier this year, Ganfeng Lithium announced it would be paying 1.47bn yuan ($225m) to take a 49% stake in a Qinghai salt lake. The investment in the Qinghai project, operated by China Minmetals, gives Ganfeng its first salt lake asset in China, and adds to similar assets in Argentina.
Using domestic salt-lake lithium has become somewhat of a necessity for China given the rapidly escalating cost of imported lithium concentrate. To give an indication of the dramatic rise in prices, imported lithium concentrate was $420 per tonne at the end of December 2020, but it has since risen to $735 per tonne.
China’s reliance on lithium imports is surprising given it has the world’s sixth largest known reserves of lithium ore, but the country has in recent years lacked the technology needed to efficiently extract it.
However, times are changing. As highlighted earlier government policy is supportive, demand is growing and improved technology means costs are being controlled and mass production is being facilitated.
So the signs are that China is moving to a position where it will be well-placed to withstand the effects of global lithium shortage.
Yet there are other potential obstacles to the scaling up of the storage sector. Last year, China’s on-grid tariff for solar and wind sank to a new low, dropping to 0.35-0.49 yuan/kWh (equivalent to $54-76/MWh).
With tariffs so low, the cost of adding storage assets to renewables could significantly increase capital expenditure, while failing to provide financial gains for developers because time-of-usage power tariffs – which are designed to incentivise customers to use more energy at off-peak times in order to balance demand – are not available for the front-of-the-meter market.
This is exacerbated by the fact that storage projects are hampered by revenue uncertainties because power prices in China are dictated by policy and regulations rather than market forces. It’s a scenario that is not conducive to nurturing a burgeoning energy storage sector.
Asia-Pacific vs the Americas
But the overwhelming feeling is one of optimism when assessing the prospects for storage in China.
While the path to 30GW of new energy storage by 2025 may be beset by obstacles, China is taking steps to better utilise its lithium reserves and the further development of wind and solar energy assets could provide a further boost.
The Chinese government has proposed a policy of linking new wind and solar projects with storage equivalent to 5-20% of the total capacity. Consultancy Wood Mackenzie has said it expects China to develop 430GW of new solar and wind capacity over the next five years which, if added, could mean that 74GW of new storage capacity would be added under the proposed ‘link to storage’ policy.
The battle for global energy storage supremacy is on. There are forecasts that the Americas could overtake the Asia-Pacific region in terms of deployed storage by 2025. But with the stars aligning for the Chinese energy storage sector, be wary of taking that bet.