Industrial and Commercial Energy Storage Research: Driving Factors, Revenue Modules, and Industrial Chain

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

“What is the Industrial and Commercial Energy Storage (‘ICES’ in short)? What is situation about the current market? What kinds of factor that drive the development of ICES? How is the revenue module? What’s the relative sectors and company in the industrial chain? Now we will discuss these problems in the below paragraph, and hopefully it can help you to understand the ICES well.” 
I.Summaries of ICES 
1.Principles of ICES 
ICES is the main component of the energy storage (ES) market with using the Lithium-ion battery and other electrochemical ES technology. Depending on the end-user, the ES can be divided into source side, grid side, and user side; besides, the source side and grid side are combined as ES before meter, and user sider is called as ES after meter. ES in user side also can be divided into ICES and home ES, and the difference between them is the customers. However, the basic user side ES in China is ICES. 
The main factor of industrial and commercial users configuration ES is to satisfy the demand of internal electricity, which using the price difference of peak and valley electricity for arbitrage to reduce the operating cost; additionally, ES can deal with the sudden power failure as backup power source, and if there is configuration of PV in ES, it can maxim spontaneous self-use of PV which effectively improves the absorption rate of clean energy. 
2.Framework of ICES  
ICES systems have battery system + battery management system (BMS), power conversion system (PCS), energy monitoring system (EMS), transformer, air-conditioner, firefighting system, monitors, alarm system, etc. By compared with the PCS of large ES station and independent battery, most ICESs are integrated building by adopting the integrated cabinet, which have the lower requirements of system control and EMS functional management than that of ES station.  
The framework of ICES mainly has two types which are AC Coupling with PCS and DC Coupling with integrated PV and ES. The AC Coupling system is similar to the system configuration of ES station, but it has smaller relative dosage and simple system function; but by parallel connection with PV and ES system, its high flexible will adopt the stock market that have been settled the PV. DC Coupling system integrates the PV inverter and bi-converter together through PV&ES integrated machine, and by compared with AC Coupling system, it has properties of highly integration and cost-effective, which the 50-100kW of PV&ES integrated machine has become the optimal choice for middle-small ICES.  
3.Applicated Scenario of ICES 
The applicated scenario of ICES is widely and distributed, and there are four main locations for ICES summarizing below: 
(1)Factories and Shopping Mall 
The obviously electricity consumption behavior of factories and shopping mall, it can make ‘valley-cutting and valley-filling’ as well as demand management to decrease electricity consumption cost and become an emergency backup power source after installing ES. 
(2)PV&ES Integrated Charging Stations 
Constructing PV&ES integrated charging stations at the limited land resources, by adopting the rooftop and parking lot canopy can ‘spontaneous self use and extra electricity storage’, which effectively released the impact of grid by charging stations. 
(3)Micro-grid and ES 
Micro-grid can be viewed as a control unit in the grid, which can satisfy the external electricity transmission in seconds; in other words, it gives the power support to electricity load aggregation area, such as islands, outer suburbs, residential area, industrial area and so on. If constructing the micro-grid in the load aggregation area, storage electricity use ES, and when a short-term power failure happened, the ES can provide stable power to the grid. For off-grid users, ES can smoothly make new energy generation and be used as backup power; and for on-grid users, the main function of ES is to realise power optimization and energy efficiency.  
(4)New Applicated Scenarios 
ICES can actively explore multi-development scenarios, and it has already been applied on data center, 5G station, charging stations of heavy truck, port shore power and so on. 
4.Classification of ICES 
ICES can be divided into supporting PV and non-supporting PV according to whether it is installing the PV or not. The main difference will show below table:

Classification		Applicated Scenarios	Main Purpose
ICES	Supporting PV	Commercial and Large Industrial Users	Installing PV+ES can realize ‘spontaneous self use’ which smoothly make new energy generation and improve the utilization rate of new energy. Peak and valley electricity for arbitrage
ICES	Non-Supporting PV	Commercial Buildings, Schools, Hospitals, and other places not suitable for installing the PV	‘Peak-cutting and valley-filling’ for arbitrage

II.Market Situation 
1.ICES in China is at the early stage, having greatly scale growth.
ICES user side was start around 2016 in China, and mainly driven by relevant national support policy in early stage, while the continuously maturity and clarity model of ICES making the installation have a greatly scale growth. As of 2022, the new installed capacity of user side ES in China has reached 764.73MW, with a YOY growth rate of over 100%. ICES accounts for about 80% -90% of the new installed capacity on the user side, and is mainly concentrated in Zhejiang, Guangdong, Anhui, Jiangsu, and other places. For the domestic market, it is expected that in the future, user side ES will be mainly composed of industrial and commercial users, with broad future space.
2.Competitive Landscape
The ICES is in a 0-1 stage, and the current competition barriers for various enterprises are not obvious, while new player will catch up with the early players. The current large scale of ICES enterprises include Time Nebula, Wotai Energy, Kubo Energy, Singularity Energy, etc., and the young enterprises have Yilanke Electric, Aopu New Energy, Ascite Energy, etc.
Current shipment is generally small amount. According to statistics from Gaogong Lithium Energy, except for some companies that promote the market through leasing, most companies have an annual shipment volume of no more than 200 units; in 2022, most of the newly entered ICES enterprises are still in the stages of product design, team formation, and brand promotion, and no products have truly entered the market.
The mainstream product has a capacity of approximately 200kWh. At present, the mainstream ES capacity of domestic ICES is 170-220 kWh, forming an energy time of 2 hours when fully charged. Some companies like Sunway, mainly promote product of 1000kWh, and target customer is industrial park, while the oversea users are mainly using products of 300+kWh.
The manufacture barriers of ICES are not hard, and the most high barriers are from channels, resources, services, brands and other soft barrier.
(1)Customer Resources.
The downstream customers of ICES are relatively scattered, but it’s extremely important for customer resources. To obtain the resources usually available from the accumulation of business, central institution (such as planning and design institutes), potential customers who have known the platform information. And the advantage of resources are relative to the location of company, which enterprises in provinces with large price differences between peak-valley, such as Jiangsu, Zhejiang, Shanghai, Guangdong, etc., having a first mover advantage. 
(2)Resources Integration
In the future, ICES needs to provide services to virtual power plants, obtain auxiliary services, and participate in the electricity spot market. Therefore, enterprises with resource integration platform layout are expected to enjoy rich business models tomorrow and will also form certain brand barriers.
III.Driven Factors of ICES
The downstream market of ICES is mainly industrial and commercial enterprises, and the core factor of investing ICES requirements is depending on whether it has economy, and with dramatically improved economy of ICES, 2023 will become the first-year o an era of development.
1.Demand: ICES Ensures the Stability of Power Supply When Power Outage
The high requirements of ICES in China making the power supply-demand tensity at most area. In 2022, total electricity consumption is 8,633.2 billion kWh, with a YOY growth rate of 3.9%, and only industrial electricity consumption is 5,594.3 billion kWh, with a YOY growth rate of 1.6%. with the stability recover economy, total electricity consumption will be continuously increase, which cause a relative power supply-demand tensity in the domestic. According to the prediction of national planning institution, in 2023, there will have 6 provinces appearing power supply shortage, and 17 provinces having little tensity.
With the limited electricity usage policy usually happening, promoting that the industrial and commercial users need more stability power supply. In 2021, the coal power price inversion leading to generating will decrease, driven purpose of ‘dual control of energy consumption’, which a variety of power rationing in whole country to strictly control the enterprises which are high energy consumption and high pollution. In 2022, continuous high temperature and drought as well as dramatic increase electricity demand, multi provincial government issue the power scheme in order, and Sichuan and Chongqing require industrial enterprises within the jurisdiction to take high temperature vacation. Power rationing, or even failure led to the drop production and revenue of enterprise, and re-start power failure made more cost for enterprise. Under this situation, it will become a brilliant future if ICES can be a way as a backup power. 
2.Revenue: Enlarging Different Peak-Valley Price Causing Development of Economy of ICES
(1)The main revenue model of ICES is ‘peak-valley electricity for arbitrage’, especially, ‘twice charge-discharge’ has more profit.
As an example of Jiangsu Province, what if: ①Installed capacity is 500kW, and continuous running time is 2 hr. ②The unit cost of investing ES is 1.7￥/Wh. ③6,000 working cycles and 330 annual operating days. ④The operating duration is 20 yrs, and the battery will be replaced at 10 yrs if ‘twice charge-discharge’. ⑤The DOD is 90 %, and 92% of charge-discharge efficiency. ⑥The attenuation coefficient of ‘once charge-discharge’ and ‘twice charge-discharge’ are 1.3% and 2.5% (corresponding to battery replacement at 10yres), respectively. ⑦‘Twice charge-discharge’ are peak-valley cycle and peak-flat cycle.⑧Financing cost is 5%.⑩The different price for electricity peak-valley is 0.84 ￥/kWh.
Based on the above assumptions, we got: 

①The IRR of ‘once charge-discharge’ of ICES is 6.93%, LCOS is 0.76 ￥/kWh, and the IRR of ‘Twice charge-discharge’ is 16.29%, LCOS is 0.44 ￥/kWh. 

②From sensitivity perspective, at the same condition of 1.7￥/Wh of EPC cost, when the different price for electricity peak-valley is larger than 0.84 ￥/kWh, we got that the IRR of ‘once charge-discharge’ of ICES is 8%, and when the different price for electricity peak-valley is larger than 0.64￥/kWh, the IRR of ‘Twice charge-discharge’ is 8%, which has more economical. 

③There exists high sensitivity for ICES about different price for electricity peak-valley, which as its difference increasing 0.1 ￥/kWh, the IRR will increase around 5%.
To consider ICES cannot really fully complete two cycles, so at the same conditions, the different price for electricity peak-valley will have good revenue probably as long as above 0.7 ￥/kWh. Therefore, the core indicators of the economy of ICES are the peak valley price difference and investment cost.
(2)Enlarging Different Peak-Valley Price Causing Development of Economy of ICES
It has reached 19 provinces which above 0.7￥/kWh of different peak-valley price in whole country, and the difference shows an expanding trend. 0.7￥/kWh is the threshold value of ICES having economics. For changeable amount, from July 2022 to 2023, the amount of provinces about different price over 0.7￥/kWh was increased from 16 to 19. For different prices, enlarging different peak-valley price covers total 20 areas, such as increasing 0.3934￥/kWh to 0.8225￥/kWh in Jiangxi, growing 0.7036￥/kWh to 0.8102￥/kWh in Shandong. Generally, as enlarging different price between peak-valley in every province, which means that more arbitrary space in configuration ICES.
Continuously improve of electricity policy on different province, with realising ‘twice charge-discharge’ of province increase. To encourage the electricity consumption among industrial and commercial user, multiply provinces adopting and improving the TOU power price, which becomes the important pillar for the ‘Peak-cutting and valley-filling’ for arbitrage. Nowadays, most provinces setting up two peak period can ‘twice charge-discharge’. Guangdong, Jiangsu, Shandong, Zhejiang, Henan, Hebei and other provinces unveil spike price; as an example of Jiangsu Province, tries to unveil deep-valley price for industrial electricity during the major festivals, and 1.5 times price increase for certain enterprises which have high electricity consumption, to realise expanding the arbitrage for ‘twice charge-discharge’. For instance, from July to September in Guangdong Province, the peak period is 10:00-11:00, 14:00-15:00, and 17:00-19:00, while the spike period is 11:00-12:00 and 15:00-17:00, which enterprises can be charged at valley time of 0:00-8:00 or flat time of 12:00-14:00, then be discharged at peak or spike time. ‘Twice charge-discharge’ can improve the utility rate of ES, increasing arbitrage revenue, reducing payback period, and its economy makes more attractive for investing ICES. Plus the expanding trend of ‘peak-valley’ price, the arbitrage space of ES is boarding, which the profit will further improve. 
3.Policy: Guided by Dual Carbon Strategy Goals, the ICES Has Become a Tendency
By following the object of ‘dual carbon strategy’, the policy gives lots of supports to ICES. At the backdrop of ‘dual carbon’ becoming the global consensus, to reduce the carbon emissions, the government work report adjusted the energy policy which change ‘dual control energy consumption’ to ‘dual control carbon emissions’ in 2022 in China. The electricity policy has incentivized IC users to allocate and store energy by enriching profit sources, promoting the commercialization of ICES. 
Combined multiform supporting policy, the government encourages the development of ICES. To improve the penetration of ICES, realise the commercialization early, the country and provinces issues the police related to auxiliary service, subsidy, and neighbour power sales, to create multi-level profit channels for operators. On the side of auxiliary service, the trading varieties in the market including peak regulation, frequency modulation, reactive power regulation, backup and black-start; besides, the ES and adjustable load has been included the auxiliary service in recent years. On the subsidy side, Northeast China Regulatory Bureau issued two kinds of compensation for new ES, which if the usage rate of AGC can reach above 98%, the compensation if 20 ￥/hr per time (power station) according to the availability time of AGC. On the neighbour power sales, the provincial government of Zhejiang issued new regulation from January 1st, 2023, which distributed power supply of enterprises can trade with nearby users directly by following the rule.
As the ‘neighbour power sales’ gradually implement, to help ‘integrated power-grid-load-storage’. ‘Neighbour power sales’ is allowing the distributed PV station selling the power to the nearby user directly through the grid, but is not selling to State Grid in lower price and users brought electricity in high price. ‘Integrated power-grid-load-storage’ can improve the power dynamic balance ability system more efficiently, economically, and safety in multiple interactive forms such as power-power complementation, power-grid coordination, and so on. Therefore, selecting renewable energy stations with strong regulation ability to organize the ‘neighbour power sales’ transaction can support the development and construction of distributed power generation and the nearby consumption, so as to realize the optimal configuration of ‘power-grid-load-storage’ links. Both side are mutually beneficial and win-win to jointly ensure the stability of the power system. 
4.Cost: The Price of Lithium Carbonate Has Halved, Which Contributed to Expanding Profit Space of the Industry
Batteries are the largest cost of ES system. The five main components of cost of ES system are battery model, BMS system, cabinet (including PCS etc.), construction with installation fee, and other design fee. As an example of Zhejiang Province, the cost of 3MW/6.88MWh ES system for a factory, the battery model can take up 55% of total cost. 
Positive electrode material is the major cost of lithium battery. There also five major components occupies the cost of lithium battery, including positive material (most ES battery adopting the LFP in China), negative material (most are graphite), electrolyte (solute general is lithium hexafluorophosphate), diaphragm, lithium copper foil. For example, positive material takes most cost of LFP Battery, which is reaching to 37%.
The price of lithium carbonate has halved, releasing the pressure of cost. After the fourth quarter of 2022, the price of lithium carbonate dropped down dramatically, causing declining of price of positive material of LFP. As of June 30, 2023, the price of lithium carbonate has dropped to 307,000 ￥/ton, and decreased more than 45% from the highest point last year; the positive material of LFP has fallen to 97,000 ￥/ton, with same dropped percentage of 45%. As the majority of ES system, the price of battery cut effectively releases the pressure on the cost side and increases the industry profits.
IV.Virtual Power Plant Will Become an Important Profit Channels
1.ICES Indicates the Core of Flexible Virtual Power Plant (VPP) 
ICES is an important part of virtual power plant, which VPP can improve the revenue of ICES as well as modify the asset attribute probably. The base of VPP is flexible resources, the core is intelligent platform. At the same time, VPP is the more economical ‘peak-cutting’ investment, because the policy continues to promote its construction. According to the evaluation of State Grid, it needs to invest 400 billion￥ for satisfying the 5% of peak load if use the thermal power to realize ‘peak-cutting and valley-filling’ for electricity system, but if use the VPP to get same result only needs to invest 50-60 billion ￥ in construction, operation, simulation and so on. 
ICES Indicates the Core of Flexible VPP, which VPP can expand its revenue model. For VPP, flexibility is mainly manifested in adjustable load and user side ES. Because of small capacity, it is difficult to satisfy the buyer demand probably, so that it can aggregate and participate in the VPP that earn profit from marketing trade. In the past two years, the policy gave more and more supports, which demonstration project have been established in various provinces, and the development of ICES is expected to be accelerated. 
From the perspective of construction process of VPP, the revolution of electricity marketization is the structure the foundation of market mechanism. The third round of transmission and distribution price reform has been launched, straightening out the electricity price transmission mechanism, and laying the foundation for the construction of the power market. At present, the power auxiliary service trading market is increasingly active.
The revolution of electricity marketization is the structure VPP of market mechanism. On January 2022, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) issued the Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market System, which clearly pointed out that the initial national unified electricity market system will be implemented by 2025. The revolution of electricity marketization focus on the attributes of commodities of electricity, to establishment and improvement of power spot market, power medium and long-term trading market, auxiliary service market and other functional modules, the introduction of new market players such as ES power stations, virtual power plants, distributed energy to participate in market trading, the use of market mechanisms to optimize the allocation of power resources, is conducive to promoting new energy consumption and energy structure transformation. Electricity marketization is also the basis of market mechanism of structing VPP, so is will play an important role on promoting the VPP.
The third round of transmission and distribution price reform has been launched, to straight out the transmission mechanism of electricity price and laid the foundation for the construction of electricity market. Third round of transmission of electricity price includes:
(1)Simplified users’ classifications, to promote full coverage of IC users at the same electricity price:
The user electricity price is gradually classified as three types including residential, agricultural and IC, and it is not divided into large industries, regular industries. Under this conditions, IC users who have same voltage level will be implemented same price, in order to avoid cross-subsidies, and different types of electricity consumption caused by the same voltage price difference, for promoting the fairness of electricity market trading and competition.
(2)The electricity price is followed by ‘allowable cost + reasonable revenue’:
From June 1, 2023, IC users electricity prices are consist of feed-in tariff, line damage costs, transmission costs, system operating costs, government funds and additional charge. Among them, system operating costs include axillary service costs, pump storage capacity electricity costs, etc. The price structure adjustment highlighted the intermediate link price, clearly reflected the cost of regulating resources in the power system, guided users to pay for regulating resources, and was conducive to ICES and other market entities to participate in the auxiliary services of the power market.
(3)Establish the incentive and restraint mechanism of load rate to facilitate the rational use of ES in installation ICES:
For two-part users whose monthly electricity consumption per kVA reaching 260 kWh and above, the electricity demand price is implemented at 90%, guiding IC users to reasonably determine the installed capacity by telegram, and IC users can also manage the demand through the ESS.
(4)Expanding the IC scope of two-part electricity price, increasing requirement of demand management.
Third revolution of transmission electricity expands the scope of two-part electricity, which the IC users whose electricity capacity is within 100-315kVA can select two-part electricity price, while IC users whose electricity capacity is over and include 315kVA must use two-part electricity price. Capacity fee (basic fee) is calculated according to the user’s transformer capacity (capacity charge), or the maximum demand for operation (demand charge), and electricity charge is calculated according to the actual purchase demand. Therefore, IC users increase the demand for fine management of electricity charges. For example, installing an optical storage system can reduce both capacity and electricity charges and save electricity expenditure. Refined management requires the layout of energy management system, which also lays the foundation for the construction of VPP.
The power auxiliary service trading market is increasingly active, enriching the ICES income model. At present, the construction of China's auxiliary service market is booming, according to China Energy News data, before 2015, China's auxiliary service costs accounted for less than 1.5% of electricity, and the proportion has increased to 2.5% in the past two years. In the wave of power market reform, emerging market entities such as load integrators, virtual power plants, pumping and storage have been included in power auxiliary service transactions, opening new channels for ICES profits.

2.Mutual Promotion of VPP and ICES Can Improve Earning Rate and/or Change Assert Attributes
(1)Improving earning rate
Current earning source of ICES is mainly coming from “Peak and valley electricity for arbitrage”, but there maybe have potential revenue after the construction of VPP. For example, participating in the electricity spot market and supporting the auxiliary services can adding the investing profits. Besides, the basis of construction of VPP is the reform of electricity marketization, causing the amplification of disadvantages of fluctuation in PV performance, finally leading to lower price at noon while PV is in best performance that increase in abandonment rate of light, like electricity price at noon in Shandong Province. However, the revenue model of ICES changes from “peak-valley electricity for arbitrage” to “peak-zero” or even “peak-negative” for arbitrage, which reduces the cost of ESS, and increase the earning rates.
(2)Transforming ICES from optional asset investments to essential investments in the power system
From enterprises’ perspective, the popularity of ICES is not yet expanded, so it’s an optional asset investments for company to invest ICES as saving electricity cost. As an important part of the user side reform of the new power system, VPP needs the supports of ICES as well as policy, market mechanisms or “educating” importance of ICES, to quickly promote and structure. This may bring about a change in asset attributes for ES in ICES, which is from optional asset investments to essential investments.
V.Summaries of Commercial and Revenue Model
1.Commercial Model
There are mainly four commercial model of ICES currently:
(1)Direct investment by owner
The industrial and commercial user can install ES own, which can directly “peak-cutting and valley-filling” and reduce the electricity cost, but they need afford the initial investment cost and annual operation and maintenance cost.
(2)Energy performance contracting (EPC)
The energy service providers can invest ES and provide service to users, sharing the benefits of ES in accordance with the agreed proportion. The energy service providers are usually power group company or ES provider who have abundant experience in construction and operation of ES.
(3)Finance leasing + EPC
By adding finance leasing cooperates as lessor of ES can reduce the asset stress of owner or power service providers. During the leasing, the ownership of ES is belonging to leasing cooperates, and the owner only has right to use; after leasing, the owner can have the ES directly.
(4)Pure leasing
During the leasing, the owner needs to pay the fixed rent to ES lessor, and the lessor will support the operation service while owner earns the electricity profit. After leasing, the equipment of ES belongs to lessor or buy out by owner. This model is suitable for enterprises that operate with light assets or have temporary electricity which needs have high requirements for the performance or portable convenience.
EPS and financial leasing will become the main trend of commercial model about the development of ICES hopefully. ICES is at the early stage, the initial investment and financial pressure making less attractive with owner or investor. At the model of EPS, the owner doesn’t need invest, and only sharing the ES profits with investor (power service cooperate) in accordance with the agreed portions, like 10% : 90% or 15% : 85%. The owner can earn partial income from “peak-valley arbitrary” and “demand response”, and the investor can earn extra income after taking back invested cost; at this basis, by adding the financial leasing cooperates, can has a further reduction of financial pressure of power service. As the mutuality of ICES, the occupancy of model of direct investment by owner and pure model will be improved.
2.Revenue Model
Currently, the major revenue model of ICES is “peak-valley electricity arbitrary” and “energy transfer”. The principle of ICES can be applicated by utilizing the ES’s ability to charge and discharge, which means that it can be a “power source” and a “load”, which can help user earning or saving. By summaries the revenue model of ICES including “peak-valley electricity arbitrary” and “energy transfer”, develops the rest revenue sources, which covers demand management, demand side response, electricity spot market, and auxiliary service. The core of expanding revenue sources is the electricity spot market and the construction of VPP.
(1)Peak-valley electricity arbitrary
The industrial and commercial electricity price system is time-of-use (TOF) in China, and the mechanism of peak-valley TOF price is one of effective demand response method, which divide the electricity time in peak, flat, and valley with different price. Implemented TOF can guide users to optimize and adjust their electricity loads, “peak-cutting and valley-filling”, thereby promoting the consumption of new energy and ensuring the stable operation of the power system.
Installed ES can save electricity bill by using “peak-valley arbitrary”. The ES system can charge when daily electricity valley, and during the load peak, the ES can support the load, to realize the energy transfer and earn the profit.
The users can expand the capacity using ES to replace transformer, to save the capacity bills. The capacity bills of IC users is based on the capacity of transformers, so it needs capacity expansion of transformers when usage loads exceed the capacity. There are two solutions for satisfying the capacity requirements, whether replacing the larger capacity of transformer or installing the ES. The principle of ES replacing transformer is when the user’s load exceeds the transform capacity, the ES will be discharged to provide power for users, and when the user’s load is below threshold value and transformer capacity, the ES will be charged, and the sum of the ES power and electricity load is also required to be less than the transformer capacity.
Actually, insufficient capacity for IC user usually occurs in a relatively short period of time that usually happening during the machine debugging and testing stages. If a transformer is utilizing for temporary capacity expansion, it is not only investing fixed assets, but also needs grid approval, government assessments, and more capacity electricity bills. Therefore, installing the ES can save the cost of investing capacity cost. 
(2)Energy transfer
The electricity cost for PV users without installing ES is not optimized. The PV power generation has a certain of intermittent and volatility, and when the power generation exceeds the consumption of load, the extra electricity will be input to the grid at a lower price; while the PV cannot support the consumption of load, the IC users have to buy electricity from grid at a higher price. Therefore, IC users who has installed PV without ES cannot obtain the optimal electricity cost.
After configuring ES for IC users, when the output of PV power generation is large, the temporarily unusable electricity is stored in the battery. When the output of PV power generation is insufficient, the electricity in the battery is released to the power load for use. By smoothing the generation and consumption of electricity through the ES, the PV power generation and consumption rate are improved, maximizing the benefits of electricity consumption
(3)Demand management
Large industry is using two-part electricity price. For large industrial electricity with a receiving transformer capacity of 315 kVA or above must use two-part electricity price in China, and the price includes basic electricity fees and watt-hour fees. In other words, the basic electricity fees are calculated based on the user’s receiving capacity (transformer) or maximum demand, while the watt-hour fees are based on the user’s actual electricity consumption.
After installing ES in IC parks with basic electricity prices charged on demand, it can monitor the actual power of user’s transformer. When the actual power exceeds the demand, the ES will automatically discharge and monitor power to release transformer pressure and protect the limitation, so as to reduce the user’s electricity demand and cost of IC parks.
(4)Demand side response
Demand side response refers to the uses of price signal and incentive signal to change original behavior of users, ultimately promoting the balance of electricity supply-demand and ensuring safety operation of electricity system. For users with installing ES, when electricity system needs increase/decrease electricity consumption of users, it can charge/discharge throughout ES, and reduce the user’s requirement from grid, as well as obtain the response subsidies.
(5)Electricity spot market
As the growth of electricity market, ICES can participate in electricity spot market through VPP in aggregate manner. VPP is applying the advanced communication and control technique, to realize the aggregation and regulation of a large number of distributed resources, so that aggregated resources are ability to participate in the operation and regulation of electricity system. The implication of “Virtual” is that the resources are not actual power station, but are the aggregation of distributed resources, and the implication of “Power Plant” is that it’s similar to real power plant to support electricity and auxiliary service for electricity system.
(6)Auxiliary service
ICES can release or store electricity energy according to the dispatch instructions of the power grid, to realize the balance of supply-demand, and provide auxiliary services such as peak shaving and frequency regulation. This mode allows ICES to flexible adjust their operation to obtain responding profit in accordance with price signal or demand change of grid in the electricity market.
VI.Analysis of Industrial Chain
1.Conceptual of Industrial Chain
ICES is similar to large-scale ES or household ES, having completed industrial chain. Upstream are various types of equipment, and midstream are system integrators and development operators, the downstream of IC operators. In the upstream, the ES module is composed of battery cells that are connected in series and parallel to store electricity. The inverter converts AC and DC power, and charges/discharges the battery according to power instructions; BMS is the core component that control and manage various functions of batteries and protect them, also it has communication functions with EMS and SCADA (EMS and monitoring system), so as to partial battery manufactures have begun to independently design BMS. EMS controls inverters and collects its data, controls battery modules and collects cell data, and executes logic (for multi-application) and integrates dispatch other devices. Midstream integrators and brand channel providers directly communicate with downstream, so they need have strong understanding with BMS/EMS as well as ES applicated scenario, and he BMS/EMS system is basically self-developed to achieve efficient integration of upstream equipment.
Two most expensive components in ICES are batteries and PCS. According to the research and measurement, the batteries take up approximately 65% of the cost of ES, 20% of PCS, and the fire and temperature control system is mainly responsible for controlling and protecting the balance of battery temperature status, accounting for about 7%; BMS is 4%, and EMS is the “brain” of system to response for data-collecting, monitoring and energy dispatch. According to the industry research, the unit price of ICES is about 1.6-2 yuan/Wh, and total cost is 1.3-1.7 yuan/Wh.
2.Relative Company
(1)Kale Power
Kale Power is deeply involved in the HVLS fan field, and has been targeting the ICES market in recent years. The main product of Kale is HVLS fan, which provides specific and personalized ventilation and cooling solution according to the different customer’s requirements. Recently, the company targets ICES market, established Anruizhe Energy and Kale Energy with subsidiary Kale Energy Tech, Co. Ltd. In order to conduct research, product, sales, investment and operation of distributed PV and ICES, focusing on user-side PV and ES solution. In 2022, the company’s operating revenue was 304 million yuan, a YOY decrease of 11.43%.
Kale is actively scheduling the distributed PV and ICES, to provide optimal solution for multi-customers. The company continues to invest the construction of clean energy, and has been gave green electricity and low-carbon energy solution to above 500 companies. Up to now, Kale new energy team design and implement over 500 MW of distributed PV and ES station, where is at Tianjin Jinghai, Zhejiang Jiaxing, Jiangsu Yancheng, Shandong Linyi and so on. There are total 17 service networks within the board, and its operational network has spread central cities in Chian, even around the world.
At the aspect of ES, according to the official website of Kale, they has launched the product of ARZ-ESS-100KW/233kWh, which is an integrated electromechanical cabinet. It has the characteristics of high safety, long lifespan (10 years), multi-scenarios (IC parks, commercial buildings, data center, exchange station and so on.). 
(2)Sinexcel
The field of new energy is constantly expanding, and the growth is accelerating through accumulation. The company was established in 2007 and focuses on the application of power electronics technology in the industrial supporting power supply and new energy fields, providing efficient and safe electricity protection for high-end manufacturing, data centers, energy, and rail transit. Providing core equipment and comprehensive solutions for energy storage microgrid systems, charging and swapping operations, consumption, and power battery manufacturing enterprises in the new energy field. In 2022, the company achieved a revenue of 1.50 billion yuan, a YOY increase of 47.16%, and a net profit attributable to the parent company of 220 million yuan, a YOY increase of 97.0%.
Continuously optimize business layout and gradually expand the ES field. The company will increase its expansion and entry efforts in the grid side, user side, overseas markets, and microgrid market. Actively participate in grid side ES projects on the basis of existing grid side and user side ES projects, and develop products and technologies more suitable for grid side ES. And vigorously expand and develop user side projects, deepening market influence from dimensions such as project development, integration construction, and product innovation. Actively exploring overseas market demand, and increasing the depth and breadth of cooperation in ocean projects. Actively explore ICES projects, and strengthen the intensive cultivation of ES products and projects in the industry.
(3)CSC Energy
In the field of energy-saving services, we have been running for decades to create a comprehensive energy supplier. The company was established in Guangzhou on June 18, 2004. Its main business categories include: 1) Industrial energy-saving services, providing comprehensive energy-saving solutions and efficient energy-saving services such as electricity, cooling, heat, and gas for industrial customers, mainly including distributed PV energy-saving services and industrial high-efficiency energy station energy-saving services. 2) Building energy-saving services mainly refer to the one-stop comprehensive energy-saving services provided by the company to customers, including comprehensive energy-saving services for existing buildings and efficient cooling, heating (water), lighting, etc. for newly built buildings (parks). 3) The comprehensive resource utilization business mainly utilizes agricultural and forestry waste power generation, heating, and agricultural PV power generation to reasonably recycle biomass energy and improve the efficiency of agricultural or unused land use. In 2022, the company achieved a revenue of 2.888 billion yuan, a YOY increase of 10.29%.
Strive forward with ES business and create new business growth points. The company is fully exploring the transformation to a load aggregator, and relying on industry and commerce, major clients, and group clients, vigorously carrying out investment, construction, and operation of load optimization and regulation facilities such as user side integrated light storage energy stations. Priority is given to the regional scope of the five southern provinces, accelerating the expansion of new businesses such as integrated solar energy storage.
(4)Suwen Electric Energy
Deeply cultivating the field of electricity, highlighting the advantages of integration. The company has been focusing on the power engineering construction and design service industry for more than ten years. It is a one-stop (EPCO) power supply and consumption brand service provider, led by the power consulting and design business, covering power consulting and design, power engineering construction, power equipment supply, and intelligent power service business. In 2022, the operating revenue reached 2.357 billion yuan, a YOY increase of 27.01%. Rich resources of industrial and commercial users, strong integrated operation capability of EPCO. The main customers of the company's EPCO are large industrial and commercial enterprises. Relying on mature power design capabilities and strong EPCO integrated operation capabilities, the company provides comprehensive energy services for many users in all aspects and processes. The company has established a one-stop electricity service system with 1 cloud platform, 5 professional capabilities, 6 types of business modules, and 7 major user scenarios, providing full lifecycle services for industrial and commercial users.
Actively embrace new energy and improve energy storage layout. The company actively explores new power systems, participates in more new energy projects, reserves relevant business talents, and improves the company's PV and energy storage technology capabilities. At the same time, actively expanding key customers, achieving more cooperation, and further increasing power services in addition to power supply and distribution, such as PV and energy storage, to provide customers with a one-stop comprehensive solution. In September 2022, the company issued raised funds for the construction of a power electronic equipment and energy storage technology research and development center project, with a total planned investment of 123.06 million yuan.
(5)Sunoren
Focusing on the investment, construction, and operation of distributed PV power plants, we are deeply committed to distributed PV power generation. The main business of Core Energy Technology includes investment and operation of distributed PV power stations (self-owned distributed PV power stations), development, construction and services of distributed PV projects (development+EPC+operation and maintenance), production and sales of PV products, investment and operation of charging piles. Among them, investment and operation of distributed PV power stations are the main focus, and the company's self-owned distributed PV power stations are all "self-use, surplus power grid" industrial and commercial distributed power stations. In 2022, the company achieved a revenue of 646 million yuan, a YOY increase of 48.59%.
Expand ES business based on distributed PV customers. The good customer base accumulated in the company's distributed PV projects can promote the promotion of ICES business. According to the company's 2022 annual report, as of the end of 2022, the installed capacity of distributed PV projects invested and operated by the company has reached 726MW. Benefiting from the increase in electricity prices and power generation, the self-sustaining power station business has rapidly expanded. The company plans to expand its ICES business, providing one-stop optical storage services based on high-quality customers.
(6)JDEnergy
JDEnergy is a new generation ES system integration manufacturer and the earliest enterprise in China to launch ICES integrated machine products, with innovative first mover advantages. On April 15, 2021, JDnergy released its energy block ES product eBlock, adopting the design concept of "ALLinone" to transform ES engineering into standardized products with four major advantages: safety, economy, flexibility, and intelligence.
On September 7-9, 2022, JDEnergy released the second generation ES integrated cabinet product eBlock200, which improved the safety performance, conversion efficiency, and intelligence of the product. It achieved complete immersion fire protection function for a single cabinet, with a rated capacity of 100kW/200kWh. Under daily two charging and two discharging operating conditions, the conversion efficiency of the AC side system is greater than 90%. According to company calculations, compared to traditional ES solutions, the eBlock200 system has improved conversion efficiency by more than 4%, increased storage and discharge capacity by 10%, reduced energy consumption by 30% through thermal management, and ultimately increased overall economic benefits by more than 16%. EBlock200 further refines intelligent monitoring technology, allowing the voltage and temperature of each cell to be viewed and managed through a mobile app, completely achieving unmanned operation and maintenance of ES power plants.
VII.Market Forecast
In the short term, ICES is related to the installed capacity of distributed PV. At the case of VPP in the experimental stage, the main function of ICES is reducing the electricity cost and earning invested profit. Due to similar properties as distributed PV, ICES has strong relationship with PV.
The installed capacity of IC PV has over that of household PV, and development has entered a fast lane. In 2022, the new installed capacity of IC PV increased by 236% YOY. In June 2021, the NEA stated that the proportion of installed PV on the total roof area of IC factories should not be less than 30%, so as to IC PV are excepted to continue their vigorous development trend this year.
Multiple regions have been introduced the policy about distributed PV with ES, to promote ES in IC PV. As of now, five provinces including Jiangsu, Zhejiang, Shandong, Hebei and Henan have proposed strong requirements about ES, especially in Shandong Linyi asking a maximum ES ration of 30%. Jiangsu and Zhejiang have also introduced subsidies for distributed PV storage, or promoted the large-scale development of supporting ICES.
It’s obvious that the market-oriented trading rend of PV power generation makes the highlight of economy of PV distribution and storage. In the context of continuously increasing profits, decreasing costs, continuous policy promotion, and persistent anxiety about power shortages, it is expected that the economy will promote the rapid development of ES in the industrial and commercial industry in the next two years. Based on: 1) The penetration rate of existing and newly added distributed PV supporting ES continues to increase, reaching 1% and 20% respectively in 23 years. 2) The allocation and storage ratio has gradually increased to 15%. 3) Referring to the data from Guanyantianxia, the new installed capacity of independent ICES has gradually increased to 2.2GWh by 2023. It is estimated that the ES demand of the industrial and commercial industry is expected to reach 5.1 (+199%), 10.4, and 18.7 GWh from 2023 to 2025.
The VPP may bring the potential of exceeding the expected long-term demand for ICES. Based on the installed capacity of distributed PV and estimated penetration rates for ES, due to the current small quantity and low penetration rates, as well as the large number of IC enterprises, there are significant variations. It can be argued that ICES provides sufficient flexible resources to the user side, laying the foundation for the development of VPP, while the construction of VPP adds expectations for future revenue growth, which may change the investment attributes of ICES, thereby promoting the development of ICES and opening up long-term space for ICES. This may bring about a change in the mindset of downstream companies and highlight the rigid demand attribute of ES, which is expected to drive a rapid increase in ES penetration. It is expected that the cumulative installed capacity of ICES in 2025 and 2030 is expected to reach 37GWh and 189GWh, respectively, if the construction of VPP is smooth.