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Decarbonizing China: opportunities in energy storage

Decarbonizing China: opportunities in energy storage

Micah Hostetter, our energy and environment specialist, takes us through the considerable openings in China's energy storage market.  

The answer, my friend, isn’t just blowin’ in the wind - it’s also bottling it up for later.

And no, this isn’t a deep dive into how British ‘entrepreneurs’ are selling fresh country air to China for £80 per bottle. It’s about how important energy storage system (ESS) technology is to China’s decarbonization efforts and the opportunities this brings for western firms with innovative ESS solutions.

Lay of the land

China’s renewable energy build-out continues to impress.

In 2022, its total installed capacity of renewable energy surged by 125 GW, led by 87 GW of solar and 37 GW of wind power. It was the third year running that solar and wind installations exceeded 100 GW. And analysts expect 2023 to be another bumper year, with the potential for an additional 150 GW to come online. 

By comparison, the EU installed 41 GW of renewable capacity in 2022, while the US only managed 25 GW.

China also hit a milestone last year when the total generating capacity of renewables surpassed that of coal for the first time.

At the same time, the intermittent nature of renewables can lead to dramatic mismatches in power supply and demand, making grid management challenging.

In China, this has been compounded by the rapid build-out of solar and wind energy provision. And some experts fear that, without effective load balancing, clean electricity might go to waste - with an unwelcome return to the widespread curtailment that plagued China’s renewables industry between 2015 and 2020 and delayed the country’s transition to a cleaner economy.

Breathtaking ambitions

ESS technology is recognized as an essential means of achieving load balancing and so as central to China’s efforts to deploy renewable energy and, by extension, to decarbonize.

China had 59 GW of installed ESS capacity by the end of last year. In 2022 alone, the country installed more ESS capacity than any other, with new deployments of approximately 16 GW – 9 GW of this from pumped storage hydropower.

The scale of China’s pumped storage hydro ambitions is breathtaking. The country’s current Five-Year Plan calls for at least 62 GW of capacity by 2025 and 120 GW by 2030 – figures some believe it will easily exceed.

To put this into perspective, the US has around 23 GW of pumped storage hydro capacity. While the country has plans to add another 50 GW eventually, it won’t get close to China’s scale.

Newer technologies  

Although pumped storage hydro accounts for more than three-quarters of China’s energy storage capacity, newer ESS technologies – from Li-ion, flow, lead-acid and sodium-ion batteries to fly-wheels, compressed air and supercapacitors - will also play a huge role in its energy transition.

China’s deployment goals for such ESS technologies are equally bold. The powerful National Development & Reform Commission (NDRC) has called for at least 30 GW of capacity using new ESS technologies to be installed by 2025 – a number many analysts believe is conservative.

Indeed, if you count all projects under construction and planned to open over the next three years, China could have nearly 67 GW based on these technologies by then.

Li-ion battery alternatives

As in other countries, Li-ion batteries account for most of the non-pumped storage capacity in China. But the country is also investing in other ESS technologies, given its vast needs and the limitations of Li-ion batteries such as relatively short power discharge time and high degradation.

While current deployment of compressed air storage remains modest, the capacity of projects under way is around 10 GW.

Flow batteries are still considered niche, but some believe China could install up to 24 GW by 2030.

Projects using flywheel technology are receiving investment. And China’s CATL and BYD – two of the world’s largest battery companies – as well as startups such as Jiangsu-based HiNa, are working to commercialize sodium-ion technology for automotive and ESS applications.

Myriad opportunities

Despite the scale of its aspirations, China’s ESS industry might seem like a tough nut for western firms to crack – partly because the country already dominates some ESS technologies, especially Li-ion batteries.

Indeed, most international companies with a narrow focus on making Li-ion battery packs will struggle to win business in the country. Even Tesla, which recently announced its intention to build a Megapack assembly plant in Shanghai, will rely on CATL cells.

Nonetheless, the sheer breadth of ESS technologies being deployed in China presents myriad opportunities for western firms, and not just the ESS giants like Tesla, LG and GE.

For example, Swiss startup Energy Vault is putting the final touches to a gravity-based battery project in Jiangsu, one of the first of its kind in the world. And California-based flow battery firm Primus Power has struck a deal with Foxconn to make its systems in China.

Wind farm in Xinjiang, China

ESS-adjacent fields

We also see big opportunities in ESS-adjacent fields, especially hydrogen.

Sinopec, one of China’s oil majors, has just opened the world’s largest green hydrogen facility in the northwest of the country. The company has also signed an MOU with France’s Air Liquide focused on hydrogen distribution.

Siemens has partnered with a Chinese company to produce green hydrogen. And UK firm - and our former client – Ceres set up a joint venture with Shandong-based Weichai and Bosch to develop stationary power applications using its fuel cell technology.

In addition, while these examples primarily concern hardware and equipment, companies offering novel software systems should also take a serious look at China. We see particular openings in battery management systems tailored to the needs of ESS, and in smart grid management.

Carpe solem

The main takeaway is that western ESS firms of all stripes should consider exploring the considerable commercial openings in China.

At the same time, they should approach the market with carefully defined strategies as it has peculiarities that make it a challenging place to do business.

For instance, while China’s current Five-Year Plan and the NRDC set broad objectives for industry growth, implementation is mostly carried out at a provincial level. The upshot is a hodgepodge of policies across the country, with varying implications for firms depending on their technologies.

Entrants also need to consider factors including the best business model for China, how to address an industry with a significantly higher proportion of state actors than their home markets, and the management of geopolitical risks.

The good news is that all these hurdles can be overcome. And, with decarbonization high on its agenda, China has so many opportunities waiting to be seized in the exciting, dynamic energy storage system market.


To discuss the prospects for your energy tech business in China, get in touch at

Micah Hostetter
About the Author

Micah Hostetter

Micah is a member of our Energy & Environment Practice, helping western agtech, life sciences and renewable energy companies to expand in China. Micah has degrees in international and East Asian Studies and has worked and lived in China for more than a decade.

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