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 refine the capacity electricity price mechanism on the generation side by establishing a capacity price system covering coal-fired, natural gas, pumped storage, and new energy storage types. 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 generation, with capacity prices determined based on recovering a certain proportion of fixed costs. 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 uniform capacity prices for new grid-connected power plants within the operating period, every 3-5 years, based on the principle of covering average costs. 4) For new energy storage: independent new energy storage stations on the grid that serve system safety and do not participate in storage allocation can be granted capacity prices by local authorities. This includes capacity charges for regulating power sources and reliable capacity compensation fees, 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-fired capacity prices, converted at a certain ratio according to peak capacity (conversion ratio equals the ratio of continuous full-power discharge duration to the longest annual net load peak duration, not exceeding 1). Factors such as progress in electricity market development and system demand are also considered. In 2023, the National Development and Reform Commission set the fixed cost for coal power units at 330 yuan/kW annually. The document requires that by 2026, coal power 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 net load duration of 6 hours annually, a 2-hour/4-hour energy storage station would have a capacity price of no less than 55/110 yuan/kW per year.

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

We believe capacity prices serve as a safety net income. For example, a 100MW/200MWh energy storage station, with a system+EPC cost of 1 yuan/Wh, corresponds to approximately 200 million yuan in fixed capital expenditure. At a capacity price of 55 yuan/kW, the annual capacity compensation per 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 expenses. 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 domestic capacity electricity price mechanisms, energy storage will continue to grow rapidly in 2026.

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

The document states that after establishing a reliable capacity compensation mechanism, assessments will be further strengthened to maximize the guiding role of capacity prices. Units that fail to meet assessment requirements will face deductions in capacity charges or reliable capacity compensation fees, to be clarified by provincial price authorities in conjunction with relevant departments. For example, in Gansu Province’s “Notice on Establishing a Generation-Side Reliable Capacity Compensation Mechanism (Trial)”, coal power units and independent new energy storage on the grid that cannot provide maximum output or discharge duration as per dispatch instructions will face a deduction of 50% of capacity charges in the month of occurrence, and a second deduction of 100%. If there are three months in a year with 100% monthly capacity charge deductions, the entire year’s capacity charges will be deducted. We believe that assessments of capacity reliability will lead owners to improve the quality of energy storage cells and systems, favoring the pricing of high-quality storage products and promoting industry consolidation toward leading companies.

▍Risk Factors:

Demand for energy storage industry falls short of expectations; unexpected changes in domestic and international policies; increasing anti-globalization and slower overseas expansion; intensified 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 and stimulate investor enthusiasm, which is crucial for the investment decisions of state-owned and central enterprises. With Document 136 removing 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 in 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)