A horde of investors are swarming to pour massive sums of money into the energy storage sector, and many have realized that this business is not as lucrative as they previously expected.
In late August, Li Zhenhua, a development lead of an energy storage project in northwest China, received the full settlement bill of the project for that month. He recalculated the entire project cycle, and the measured rate of return changed by 0.4 to 0.6 percentage points compared with the past.
A series of new transmission and distribution price reform policies introduced by regulatory authorities since the beginning of this year are reshaping the energy storage accounting books. Li Zhenhua told the Economic Observer that the company's finance team is using the relevant new rules to iterate the full life cycle return measurement model.
Li Zhenhua told the Economic Observer: "Most long-duration energy storage projects with a duration of 4 hours or more can be clearly calculated in the model; for 2-hour short-duration energy storage projects, the actual capacity compensation received has shrunk significantly, and the entire project model needs to be recalculated."
Li Zhenhua introduced that his enterprise has suspended the advancement of a batch of 2-hour short-duration energy storage projects, and prioritized the scheduling of energy storage projects with a duration of more than 4 hours that adapt to local peak demand.
Reporters from the Economic Observer learned through interviews that the capacity tariff standards set by various provinces are not the same. Some provinces have issued official documents, while others are still under research and demonstration and have not yet been finalized. Energy storage investment is concentrating in provinces with high compensation standards.
A person from a private energy storage operator believes that the market has bid farewell to the stage where profits can be made as long as the project is built. The energy storage industry is no longer supported by the grid, and has to rely on itself to make profits in the market.
New Accounting Books
The reason why the energy storage return model needs to be recalculated stems from a series of documents issued by the regulatory authorities: On November 21, 2025, the National Development and Reform Commission issued the *Measures for the Supervision and Verification of Transmission and Distribution Pricing Costs*, *Measures for the Pricing of Transmission and Distribution Prices of Provincial Power Grids*, *Measures for the Pricing of Transmission Prices of Regional Power Grids*, and *Measures for the Pricing of Transmission Prices of Inter-provincial and Inter-regional Special Projects* (Fa Gai Jia Ge Gui [2025] No. 1490, hereinafter referred to as "Document 1490"). On January 27, 2026, the National Development and Reform Commission and the National Energy Administration jointly issued the *Notice on Improving the Generation-side Capacity Tariff Mechanism* (Fa Gai Jia Ge [2026] No. 114), establishing a grid-side independent new-type energy storage capacity tariff mechanism. On July 8, 2026, the National Development and Reform Commission issued the *Notice on the Transmission and Distribution Prices of Provincial Power Grids, Transmission Prices of Regional Power Grids and Related Matters for the Fourth Regulatory Cycle* (Fa Gai Jia Ge [2026] No. 1077), which will be implemented from August 1, 2026. August has also become the first month for the implementation of the new transmission and distribution price policy in the fourth regulatory cycle (the new round of provincial power grid transmission and distribution price regulatory cycle implemented from August 1, 2026).
Qiao Yong, a staff member of a secondary power company of a central state-owned enterprise located in northwest China, told the Economic Observer that starting from August, the settlement process for independent energy storage is "settlement at a single rate for charging, and deduction of transmission and distribution tariffs for discharging". This process has been embedded in the provincial power grid electricity bill settlement system for automatic execution, without manual adjustment of each transaction.
Once the rules change, the accounts of energy storage projects will be recalculated accordingly.
A person who participated in the discussion on the formulation of documents related to transmission and distribution prices told the Economic Observer: "What this round of recalculation reflects centrally is not the direct rise or fall of bills, but that after the rules are further clarified, market entities begin to re-examine the deduction rules of transmission and distribution tariffs for charging and discharging."
The recalculation is being transmitted from independent energy storage all the way to new energy supporting energy storage.
Li Zhenhua told the Economic Observer that looking only at the full settlement bill in August, the revenue per kWh did not fluctuate much compared with that in July, but the internal rate of return is not based on a single month. The finance team is using the new settlement rules of August to iterate the full-cycle model. Compared with the calculation of the old version, the internal rate of return of the project over the full cycle has changed by about 0.4 to 0.6 percentage points.
Li Zhenhua has calculated that the capacity tariff is more like a "guaranteed base salary", which can only cover part of the fixed cost gap. To achieve a reasonable return, the project must combine spot arbitrage and ancillary service revenue. If a project only relies on capacity tariff and does not participate in the electric energy market and frequency regulation and peak shaving, it will not be able to make profits even with the capacity tariff, and it is difficult for the project to make money.
On the new energy supporting energy storage side, the recalculation of accounts is more obvious.
A person in charge of relevant business of a large new energy central SOE told the Economic Observer that in the past, most of the supporting energy storage inside the large wind and solar bases was directly included in the overall construction cost of the wind and solar projects, accounted for together with wind power and photovoltaic assets, and was regarded as "grid connection compliance cost", without separately calculating whether the energy storage itself is profitable. Now the internal financial requirements of the enterprise must measure by separate assets, and separate the investment, depreciation and operation and maintenance of energy storage for evaluation. The person in charge of the relevant business of the new energy central SOE said: "If the energy storage unit cannot generate independent revenue, it will directly reduce the internal rate of return of the photovoltaic project."
Once the accounts change, project approval will also change accordingly.
In the aforementioned new energy central SOE, there used to be more supporting energy storage. Now, a systematic demand assessment is carried out at the project approval stage. Only when there is clear local consumption and peak regulation demand, and energy storage can generate real cash flow through leasing, joint transactions and ancillary services, will the self-construction of supporting energy storage be considered.
The number of people coming to the grid to consult the accounting caliber is also increasing.
Qiao Yong told the Economic Observer: "In the past one or two months, the number of energy storage investors and project developers coming for consultation has increased significantly. The top concern is the list access, assessment and deduction rules of the independent energy storage capacity tariff in the province; the second concern is the practical details of the deduction of transmission and distribution tariffs for charging and discharging."
Yu Haifeng, a relevant staff member of a provincial power company under China Southern Power Grid, told the Economic Observer that the number of project parties consulting him recently continues to rise. Their top concerns are the peak-valley price difference and spot arbitrage space, and they also care about the promotion pace of the provincial independent energy storage capacity tariff.
A person close to the National Energy Administration summarized that this round of recalculation in the energy storage industry is a transformation from "being installed" to "being well utilized and having clear accounts". However, to clarify this new account, at least two to three consecutive months of settlement data are still needed, and beyond the accounts, a greater change is unfolding.
Clearance and Phase-out
In northwest China, power grid enterprises are removing energy storage assets from the transmission and distribution cost pool.
The aforementioned person from State Grid told the Economic Observer that starting from the cost declaration of the fourth regulatory cycle, all energy storage and pumped storage assets have been completely excluded, and will no longer be included in the transmission and distribution permitted cost accounting. Stock assets are classified and transferred according to the requirements of the regulatory cycle, and incremental projects are blocked from the source, and are no longer allowed to enter the transmission and distribution asset pool. A small number of early grid-side energy storage projects belong to scientific research demonstration projects, and have completed asset divestment before the update of the cost supervision and verification rules in the aforementioned Document 1490.
Yu Haifeng told the Economic Observer that most of the energy storage invested by the grid within the China Southern Power Grid system belong to distribution network side demonstration and station-area energy storage pilot projects. After the implementation of the aforementioned Document 1490, the stock demonstration energy storage assets are managed in separate accounts, as distribution network technology research assets, do not participate in permitted return accounting, and do not pass on investment costs to end users.
The effect of policy "weaning" is being transmitted from the grid side to the generation side.
A person in charge of relevant business of a private new energy enterprise told the Economic Observer that although Document 1490 restricts grid-side assets, it releases a clear signal: energy storage cannot rely on the grid cost pool to pass on investment, and all investment costs must be absorbed by the generation side itself. After the policy "weaning", the enterprise began to rewrite its investment evaluation standards. In the past, the focus of project approval was on the local supporting energy storage ratio requirements. Now, the first step is to assess the local power market conditions, spot price difference, and the openness of the ancillary service market.
The aforementioned person who participated in the discussion on the formulation of documents related to transmission and distribution prices told the Economic Observer that the transmission and distribution price is essentially only used to account for the assets of the grid transmission and distribution network itself, that is, "channel-type" facilities such as lines and substations. Energy storage and pumped storage belong to power supply side regulation resources, and their business attributes do not directly fall into the category of transmission and distribution business, so logically they should not be mixed into the grid permitted cost pool. In the past, in some regions, if the grid invested in energy storage and allowed it to be included in the effective transmission and distribution assets, the investment, depreciation and return of energy storage would eventually be paid by all end power users through transmission and distribution tariffs.
The person said: "This model can rapidly expand the scale of energy storage in the short term, but it will bring two problems. First, it is easy to form cross-subsidy and break the principle of fair sharing among users in different regions; second, it weakens the market-oriented survival ability of energy storage projects themselves, and the pressure of investment and operation is passed outwards. In the long run, this path is unsustainable." In his view, it is not that the development of energy storage is not supported. On the contrary, it is to block the path of "grid cost underwriting", and at the same time build an independent energy storage capacity tariff mechanism, so that the revenue recovery path is transferred to the system operation cost, power market, ancillary service system. The combination of blocking and supporting is a supporting design.
The aforementioned person close to the National Energy Administration summarized that in the past, relying on the mandatory requirements of supporting energy storage or attaching to grid assets to share costs could rapidly drive installed capacity in the short term, but it was prone to the problem of emphasizing construction over utilization, and some projects were "built but not used". Now, the support mode has been transformed from "full underwriting" to giving reasonable returns according to system contributions, forcing projects to truly serve grid peak regulation and supply guarantee.
After the clearance and phase-out, for the first time, energy storage does not rely on subsidies or mandatory supporting requirements, and has to survive on its own market-oriented accounts. And the differentiation of accounts is widening.
Differentiation
After recalculation, the differentiation is widening.
Li Zhenhua told the Economic Observer that the enterprise has re-reviewed all its stock and reserve projects, and the differentiation is very obvious. Most long-duration projects with a duration of 4 hours or more, high effective utilization hours and high scheduling compliance level can be clearly calculated. They can not only get a higher proportion of capacity compensation, but also have sufficient duration to participate in spot arbitrage and peak supply guarantee, and multiple revenues can complement each other.
The aforementioned person from the private energy storage operator told the Economic Observer that the shortcomings of 2-hour short-duration energy storage are very prominent. Affected by the duration conversion rules, the actual capacity compensation received is greatly reduced, the discharge window is short, and it is difficult to continuously capture the full peak electricity price. Once the market situation weakens and the effective utilization hours decline, the project will directly fall into a loss range. There is also a type of project with poor geographical location, limited access and long-term low node price difference. Even if it is a 4-hour energy storage project, it also cannot have clear accounts.
It is not only projects that are differentiated, but also provinces.
A local government person in Gansu who participated in the formulation of the province's capacity tariff plan told the Economic Observer that the province's compensation benchmark is at a relatively high level in China, but after deducting various conversions, the actual revenue obtained by the project will be discounted.
A person in Ningxia who participated in the formulation of the province's capacity tariff plan revealed that the province's plan has completed internal measurement and expert demonstration, and has just finished the public consultation for the public. It is expected that the official document will be issued in the fourth quarter of this year, with a preliminarily proposed benchmark of about 165 yuan/kW·year, which is subject to the official document.
However, a person in Guangdong who participated in the formulation of the province's capacity tariff plan said that Guangdong has a huge volume of industrial and commercial users, and the affordability of the whole society's electricity cost is a factor that must be prioritized. It cannot simply copy the compensation standards of the new energy provinces in northwest China, and the province's compensation benchmark is likely to be lower than that of the major new energy provinces in northwest China.
The aforementioned person close to the National Energy Administration told the Economic Observer that capital has shown a sign of differentiation in investment preference. Capital will prioritize assessing the comprehensive return level of various provinces, and tilt to regions with high compensation standards and active spot markets. However, there is no extreme one-sided phenomenon of capital gathering in a small number of provinces.
The leasing market is also differentiating.
The aforementioned person in charge of relevant business of the large new energy central SOE told the Economic Observer that the capacity leasing market has cooled down significantly. After the rigid demand generated by mandatory supporting energy storage has faded, the bargaining power of buyers has increased significantly. The long-term capacity leasing price in the concentrated areas of large northwest bases has dropped significantly compared with the peak in the previous two years. In reality, there are indeed cases where the supporting energy storage of some power stations cannot be leased out.
The aforementioned person in charge of relevant business of the private new energy enterprise told the Economic Observer that the current capacity leasing market is severely differentiated. There is still some long-term leasing demand in the large new energy bases in northwest China, but the price continues to decline. After the rigid demand for supporting energy storage in central and eastern provinces disappears, leasing orders have decreased significantly.
Projects with clear accounts continue to advance, while those with unclear accounts are suspended or withdrawn. The energy storage industry is experiencing the first time that market-oriented accounts determine the fate of projects.
This article is from the WeChat official account "Economic Observer", author: Wang Yajie, authorized by 36Kr for release.