In February 2025, China shelved a requirement that new domestic wind and solar projects be bundled with energy storage. The change meant that China’s storage providers could no longer rely on these renewable projects for guaranteed demand. Instead, they now had to compete on the open market.
And yet, despite this, growth in energy storage has remained stable. Battery and battery-energy-storage system exports have hit new highs, seeing a year-on-year growth of 24 per cent for the first three quarters of 2025, according to Reuters. The industry is adapting to the domestic market and looking to expand internationally.
But a year after the mandate ended, key questions remain. How can the industry find a stable profit model? And can exports continue to grow in the face of trade barriers and geopolitical headwinds?
The rise and fall of the energy storage mandate
The central premise of the mandate was simple. Wind and solar generation varies with the time of day and is contingent on the weather.
Energy storage is a way to overcome those issues of intermittency. Pumped-storage hydroelectricity (PSH) is the most used method to achieve this, but “new energy storage systems” have emerged rapidly. These alternative systems include: lithium-ion batteries, where energy is stored in solid electrodes; flow batteries, where energy is stored in liquid electrolytes; and compressed air and mechanical systems.
“
Pressure from policies such as the EU Battery Regulation may also see Europe come to rely less on supplies from China. But there’s huge potential in emerging markets in Southeast Asia, the Middle East and Africa.
Yao Yi, senior climate and energy project manager, Greenpeace
In 2017, Qinghai became the first part of China to put in place the requirement for new energy storage systems, providing a model to be followed. Three years later, the central government issued various policies to support the industry. Provinces moved from encouraging wind and solar projects to be built with energy storage to requiring it, codifying rules for the size and nature of systems to be installed.
These moves sparked exponential growth. Nearly 44 gigawatts of new energy-storage system capacity was installed in 2024, reported the China Energy Storage Alliance. As such, the installed capacity of new systems overtook PSH for the first time, the alliance added.
But there were also challenges, the first of which was energy dispatch.
Data from the China Electricity Council shows that in 2022, new energy storage systems delivered just 6.1 per cent of their potential maximum output. By June 2024, those systems were operating for an average of only 3.74 hours a day.
Wang Zesen, senior engineer at the State Grid Jibei Electric Power Company, identifies two reasons for those low utilisation rates: some areas with good wind and solar resources lack grid connections to transport the power generated; and some systems are too small or inflexible to meet changing demand.
Further, the mandate led to worries over the quality of systems being installed. According to a report in China Energy News, project owners saw storage systems as an expense rather than a source of income. They therefore preferred to keep costs down by buying low-quality batteries, giving rise to safety risks.
Collectively, these concerns led to a change of policy in February 2025, when the mandate was retired. A September 2025 national action plan, however, has set the 2027 target for new energy storage system capacity at 180 gigawatts – about twice the current amount.
Dialogue Earth consulted Li Chenfei, who manages research at the China Energy Storage Alliance, a non-profit organisation in Beijing.
Li says the removal of the mandate had two effects: “First, wind and solar projects in certain provinces could secure favourable, fixed-rate tariffs under existing policies if they were connected to the grid before 31 May, encouraging many to accelerate their construction schedules. These projects are still required to be paired with energy storage systems, triggering a rush in installations and a surge in capacity in the first half of the year. Second, it shifts the industry from being policy-led to market-led, meaning firms need to improve technology and operations to compete.”
In the first quarter of 2025, installations of new energy storage systems fell for the first time, only to recover quickly. Data from the National Energy Administration shows that by the end of September 2025, China had 100 gigawatts of new energy storage systems installed.
That was 30 times the 2020 figure, and over 40 per cent of the world’s total capacity. “This shows that real demand for new energy storage systems remains stable, and short-term fluctuations aren’t changing the long-term growth trend,” says Yao Yi, a senior climate and energy project manager at Greenpeace.
Making money on the market
The value of energy storage may be clear. The harder question now is how it makes money.
Currently, energy storage facilities can generate revenue in three ways. First is energy arbitrage: storing power when it is cheap and plentiful, then selling it back at higher prices when demand rises. Second is the provision of ancillary services to keep the grid stable.
Third are “capacity payments”, earned by remaining on standby as a back-up source of power.
Last April, the government said electricity spot markets should cover all of China by the end of 2025. In theory, this would allow operators to buy cheap power and sell it later at profit. In practice, however, there were smaller gaps in electricity prices during 2025 in areas with a high proportion of renewables.
Li Chenfei explains: “Under traditional models of operation, energy storage firms use capacity leasing and regular charging and discharging arrangements to make a profit … However, energy-trading markets mean they must be more precise, deciding when to buy and sell power and how to optimise trades on spot and ancillary service markets.”
Pilot projects in places like Guangdong, Fujian and Shandong have been allowing energy storage firms to trade on spot markets and provide ancillary services for years now.
But many projects still struggle to turn a profit – gaps between high and low electricity prices remain too small, and the additional electricity needed to provide ancillary services costs too much. In Guangdong, for example, six independent energy storage firms trading in the spot and ancillary services markets incurred losses of CNY 21.38 million (about US$3 million) in 2024.
But simultaneously, the expansion of renewable capacity is driving up demand for ancillary services. As of the end of 2025, over 20 provinces had set rules for subsidies.
Giving frequency regulation as an example, Li says China still lags behind more mature overseas markets in the range and granularity of services offered. But he says based on current trends, the ancillary services market is set to expand, with more specialised offerings including frequency regulation, back-up capacity, ramping and inertia. “These new service types will mean larger and more stable sources of income for energy storage,” he adds.
Some provinces are also exploring capacity payments, whereby storage companies can earn a fixed fee for “effective capacity”.
Li says: “During this transitional phase, making payments based on capacity can stimulate the construction of storage. But in the long term, effective capacity better reflects the contribution made to grid security, and is easier to link up to capacity payments made for other flexible resources like thermal power and pumped hydropower.”
Yao Yi argues pricing is not the only challenge – technology and oversight also need attention. Many provinces have put capacity-payment policies in place, but there is no single standard yet for defining “effective capacity” or service hours. “If there are varying standards, it’s hard to make regional comparisons and it will complicate any future cross-provincial and cross-regional electricity trading,” she says.
Overall, energy storage firms are likely to rely on three main sources of income: short-term price arbitrage on spot markets; fees for providing stabilising ancillary services; and revenue from capacity payments. As Yao puts it, policy, markets and technology must work together.
Exports: Opportunities and challenges that coexist
Even as the domestic energy storage market steadily grows, the expansion of renewable capacity overseas is driving surging demand. Chinese energy storage firms are well placed to meet this.
Such firms signed 308 deals to export equipment overseas in the first nine months of 2025, according to figures from the China Chemical and Physical Power Sources Industry Association. This represented 210 gigawatts of capacity, twice as much as the previous year. Most of that growth came from Europe, Australia and the Middle East.
In 2024, the European Union and US together accounted for 73 per cent of China’s lithium-storage exports. However, high tariffs have caused demand from the US to shrink.
Yao says: “Pressure from policies such as the EU Battery Regulation may also see Europe come to rely less on supplies from China. But there’s huge potential in emerging markets in Southeast Asia, the Middle East and Africa. For example, Vietnam has said it will invest huge amounts of money in renewable energy, and that means a new growth opportunity for Chinese firms.”
But the export rush also carries risks, as fierce competition pushes manufacturers into price wars. According to the People’s Daily, one-third of energy storage retailers are selling products below cost, with domestic price competition spilling into export markets. This is squeezing profitability.
Yao Yi says Chinese companies need to be wary of damaging the corporate ecosystem when competing on price overseas, to avoid making the mistakes seen in the solar sector.
Emphasising product quality, operational and maintenance capacity and technical standards is key to ensuring sustainable growth and cultivating a competitive reputation, she says. “What we’ve seen in solar power warns us that excessively low prices will disrupt the market and harm the long-term interests of Chinese firms.”
Yao also argues that Chinese companies ought to be mindful of the risk of other countries becoming overly dependent on imports: “If markets are dependent on Chinese imports in the long term, the development of local manufacturing capacity will be restricted. Many countries have noticed this and are hoping to see deeper cooperation to build better locally.” Chinese companies could play a key role in this cooperation if they choose to.
With the mandate gone, China’s energy storage sector will be defined by how well it navigates markets, policy and global competition.
This article was originally published on Dialogue Earth under a Creative Commons licence.
