Mandatory ESS “Left-Learning”, Shared ESS “Right-Learning”

Early in the morning of February 5, located in Qihe Economic Development Zone, Shandong Hengliyuan New Energy Co.,Ltd.

New energy storage is developing in chaos.
One side is low utilization rate and cost-efficiency, but active investment in new energy supporting ES; another is shared ES advanced at volume management, ancillary services and spot trading, but inactive investment. 
Since the development of electrical system, new ESS must keep innovation, which shared ES must have enough market genes to develop healthy as an independent market entity.

01
Planned Mandatory ESS is Difficult to Sustain
New energy supporting ES constantly being criticized.
According to the data from China Electricity previously, the utilization rate of new energy supporting ES is only 6.1%, far below the 15.3 % of thermal power generation and 14.8% of state grid. In other words, new energy supporting ES became a display, and useless.
Currently, the feasibility of supporting ES does not depend on the utilization rate, but mainly relies on packaging as a part of new energy, and it even becomes a method to win the bidding of new energy, which be unworthy of the name or malformation development.
Especially with the efficiency improvement and cost reduction of new energy, the new energy's ability to pay for and willingness to pay for mandatory ESS "does not decrease but increases", and they voluntarily become the big deal, which also explains why mandatory ESS is criticized, but there is no shortage of payers.
Who is the culprit behind the unsatisfactory performance of mandatory ESS?
Actually, the high-level only intention guidance and not involve mandatory, but in order to make new energy quickly connected to the grid, the local government starting introducing a mandatory ESS policy at 2020, and it’s getting worse, constantly increasing. 
Nowadays, as a prerequisite for new energy grid connection, most of provinces have introduced supporting ES requirements of ranging from 10% to 20%, 1 hour to 4 hours and others.
The actual situation exceeded expectations.
Recently, since the UHV construction and flexibility transformation of thermal power station and other factors, the phenomenon of wind and solar abandonment are getting better, leading to the utilization rate of windfarm and PV; for example, the utilization rate of windfarms and PV was increased from 82.4% and 90% of 2016 to 96.8% and 98.3% of 2022, respectively. This also echoes the low utilization coefficient of supporting energy storage, and the promoting effect of supporting energy storage on new energy consumption is questionable.
At present, except satisfy the requirements of local government policy, the mandatory ESS does not have obviously market value, and most enterprises think that the necessity for such an expensive arrangement is questionable, which want to call for a halt.
02
Shared ESS In Market is Slight Step Forward 
Since the mandatory ESS has low utilization rate, it seems that the shared ESS is a optimal solution.
In July 2021, the high -level issued the “Guiding opinions on Accelerating the Development of New Energy Storage”, propose to “encourage the exploration and construction of shared energy storage”, formally proposed the concept of shared energy storage, and placed it in the “independent market subject status” paragraph.
Mandatory ESS is mostly like a planned economy in local government, wildness developing; whereas shared ESS is the market behavior that be pushed by “high-level”.
If there exist a waste in economy about mandatory ESS, the shared ESS seems virtual, because it is not only using for volume management, but also using for ancillary services, even can participate in spot trading in electric markets. 
However, it’s easier said than done.
Nowadays, three economic sources of shared ESS are capacity leasing, ancillary services and peak-valley price spread arbitrage, but all uncertainties. Capacity leasing mainly depends on the planning layout of surrounding PV and Windfarm resources; and ancillary services is relying on the grid response demand as well as grid structure; peak-valley price spread arbitrage is followed by local electricity demand and electricity spot market.
Because of three uncertainty economic resources, prevent the active investment of marketization, especially the imperfect electricity spot market that the “stress difference” among the areas, which ultimately leading to the uncertainty income of peak-valley price spread arbitrage.
Compared to mandatory ESS having guaranteed, although the shared ESS is confronted with the market requirement, the amount of demand is uncertain, which has large risk and yield model is difficult to structure, and further leading to the high requirement on profession as well as hard to make invest decision.
If the mandatory ESS is just simple invested behavior, even rude, the shared ESS will be a professional operation behavior with high barriers to entry. Due to no reservation of policy, it needs professional judgement and prediction for future earnings from all sides, and the shared ESS is the technique. 
03
Shared ESS Don’t Have Guarantees
Shared ESS is an “independent market entities”.
Compared with pump-storage, what is the major difference with electrochemical ES?
Besides the functional congenital differences, pump-storage has obvious advantages than shared ESS. For example, the cost of pump-storage can reach the electric transmission-distribution price becoming a part of grid system, which has economic guarantee; but shared ESS cannot reach the electric transmission-distribution price and its investment and operation completely depending on the market.
One has guarantee, another is not. 
There is no extra income source for shared ESS besides market. In the context of metallization operation, the large investment at the early stage is proposed to high requirements for certainty of future income. If there is not enough predictability, it’s hard to be economical.
From the perspective of function, the shared ESS should become a part of grid same as pump-storage, but it is incorporated into the market, which own losses and gains, actually. 
In the early stage of the development of the new power system, various policies are exploring, shared ESS is positioned as an independent market subject, and the characteristics of insufficient marketization are undoubtedly revealed, and it is not easy to promote.
04
What’s the Value of the New ESS by Soul Question?
Back to basics, what is the value of the new ESS?
The requirements of new ESS is related to the appearance of new electric system, and from the perspective of ecological niche of “sources, grid, load, storage”, the basics of new electric systems is improving occupancy of new energy at the “source” side that give a shock to whole electric systems.
When the new energy output simultaneity rate is not high, the traditional regulation resources, UHV and other levels of voltage can be absorbed, and once the output simultaneity rate is exceeded, the existing regulation resources will appear bottleneck.
Currently, the power generation of windfarm and PV has taking up 11% in 2022, and according to the predication, when the proportion of wind power and PV power generation exceeds 15%, the impact on the grid will cross the threshold and accelerate the embodiment.
Therefore, it is necessary to make an advanced preparation for the impact of the increase in new energy, including UHV, pump-storage, new ESS and so on. 
In the process of the continuous evolution of new power systems, the value core of new energy storage is mainly two:
Firstly, the value of passive capacity and auxiliary services for peak and frequency regulation, which is because the proportion of new energy is increasing, and the disturbance to the power grid is getting larger and larger;
Secondly, the spot trading value of the active peak-valley price spread, which is due to the continuous reduction of new energy and energy storage costs, the increasing number of market entities on the power side and the user side, and the maturity of the power spot trading market, which promotes the emergence of the peak-valley price difference market.
Both of these values are related to the construction of new power system.
To this end, with the construction of new power systems, the requirements for new ES are realistic and urgently needed, but new energy storage, especially shared energy storage, must check for value from these two aspects, or the high-level needs to create value in these two aspects, so that the certainty of income is more predictable, so as to promote the investment enthusiasm of independent market players.