CITIC Securities: Domestic energy storage installations are expected to grow rapidly by 2026. We are optimistic about leading companies in the energy storage industry chain.

CITIC Securities pointed out that on January 30th, the National Development and Reform Commission and the Energy Administration proposed establishing an independent new-type energy storage capacity electricity price mechanism on the grid side. They believe that the implementation of a national capacity electricity price policy will help stabilize energy storage revenue expectations, stimulate investors’ enthusiasm, and have significant implications for the investment decisions of state-owned enterprises and other clients. As Document 136 cancels mandatory storage requirements, the energy storage industry is shifting from cost competition to value creation, with investment value gradually emerging. CITIC Securities expects domestic energy storage installed capacity to grow rapidly by 2026 and is optimistic about leading manufacturers in the energy storage industry chain.

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Implementation of National Capacity Electricity Price Policy, Optimistic About Rapid Growth in Energy Storage

▍Establish a capacity electricity price mechanism on the generation side, with reasonable pricing for regulating capacity.

The core of Document 114 is to improve the classification of the capacity electricity price mechanism on the generation side, establishing a capacity price mechanism covering four energy types: coal-fired power, natural gas power, pumped storage, and new energy storage. 1) For coal-fired power: the document requires increasing the proportion of fixed costs recovered through capacity prices to no less than 50%, with potential for further increases based on local market development and coal power utilization hours; 2) For natural gas: provincial price authorities may establish a capacity price mechanism for natural gas power, with capacity prices determined based on a fixed cost recovery proportion for natural gas generators; 3) For pumped storage: projects started before the issuance of National Development and Reform Commission Document 633 will continue to have government-set capacity prices. For projects initiated after the policy, provincial price authorities will set a unified capacity price for new power plants on the grid during the same period, every 3-5 years, based on the principle of recovering average costs over the operating period; 4) For new energy storage: for independent new energy storage stations on the grid that serve system safety and are not participating in storage allocation, local authorities may provide capacity prices, including capacity charges for regulating power sources and reliable capacity compensation fees. These are incorporated into local system operation costs and passed on to users.

▍Energy storage capacity prices are converted from coal-fired capacity prices, with compensation levels determined according to local conditions.

Quantitatively, the capacity price for new energy storage is based on local coal capacity prices, converted at a certain ratio according to peak capacity (the ratio is the duration of full-power discharge divided by the longest net load peak duration in a year, not exceeding 1), considering the progress of electricity market development and system demand. In 2023, the National Development and Reform Commission set the fixed cost for coal units at 330 yuan/kW annually. The document requires that by 2026, coal units recover at least 50% of fixed costs, meaning coal capacity prices in each province should be no less than 165 yuan/kW. For example, with a peak load duration of 6 hours annually, a 2-hour/4-hour energy storage station’s capacity price would be no less than 55/110 yuan/kW per year.

▍Capacity prices provide high revenue certainty and are expected to significantly boost domestic energy storage installed capacity.

We believe capacity prices serve as a safety net income. For example, a 100MW/200MWh energy storage station, with a system+EPC total of 1 yuan/Wh, corresponds to a fixed capital expenditure of about 200 million yuan. At a capacity price of 55 yuan/kW, the annual capacity compensation for a single station would be 5.5 million yuan, totaling 11 million yuan over 20 years, accounting for 55% of fixed capital costs and covering most fixed costs. From a project return perspective, we estimate that a capacity price of 55 yuan/kW can increase the overall investment return from 4.1% to 6.3%, a significant improvement. According to data disclosed by the National Energy Administration, domestic new energy storage installed capacity is projected to reach 183 GWh in 2025, an 84% year-on-year increase, maintaining rapid growth. We believe that with the establishment of the domestic capacity electricity price mechanism, energy storage will continue to grow rapidly in 2026.

▍Reliability of capacity becomes a key performance indicator, with an optimistic outlook for industry competition pattern optimization.

The document states that after establishing a reliable capacity compensation mechanism, assessments will be further strengthened, and capacity prices will be guided accordingly. Units that fail to meet assessment requirements will have capacity charges or reliable capacity compensation fees deducted, with specific measures determined by provincial price authorities in conjunction with relevant parties. For example, in Gansu Province’s “Notice on Establishing a Generation-Side Reliable Capacity Compensation Mechanism (Trial),” coal units and independent new energy storage on the grid that cannot provide maximum output or discharge duration as per dispatch instructions will face deductions: a 50% reduction of capacity fee for one month, and 100% for a second occurrence; if this happens three months in a year, the entire annual capacity fee will be deducted. We believe that assessments of capacity reliability will push owners to improve product quality of energy storage cells and systems, favoring high-quality storage products with reasonable pricing, and promoting industry consolidation toward leading players.

▍Risk Factors:

Demand for energy storage industry falls short of expectations; unexpected changes in domestic and international policies; intensifying anti-globalization leading to slower overseas expansion; increased industry competition and deteriorating competitive landscape; significant fluctuations in upstream raw material prices.

▍Investment Recommendations:

We believe that the implementation of the national capacity electricity price policy will help stabilize energy storage revenue expectations, stimulate investor enthusiasm, and be highly significant for the investment decisions of state-owned and central enterprises. With Document 136 canceling mandatory storage requirements, the energy storage industry is shifting from cost competition to value creation, with investment value gradually emerging. We expect domestic energy storage installed capacity to grow rapidly by 2026 and are optimistic about leading manufacturers in the energy storage industry chain: 1) energy storage system integrators; 2) cell suppliers; 3) PCS suppliers.

(Source: People’s Financial News)