Energy Storage Operation Modes in Typical Electricity Market and Their Implications for China

Abstract

As the Chinese government proposes ambitious plans to promote low-carbon transition, energy storage will play a pivotal role in China’s future power system. However, due to the lack of a mature electricity market environment and corresponding mechanisms, current energy storage in China faces problems such as unclear operational models, insufficient cost recovery mechanisms, and a single investment entity, making it difficult to support the rapid development of the energy storage industry. In contrast, European and American countries have already embarked on certain practices in energy storage operation models. Through exploration of key issues such as investment entities, market participation forms, and cost recovery channels in both front and back markets, a wealth of mature experiences has been accumulated. Therefore, this paper first summarizes the existing practices of energy storage operation models in North America, Europe, and Australia’s electricity markets separately from front and back markets, finding that perfect market mechanisms and reasonable subsidy policies are among the main drivers for promoting the rapid development of energy storage markets. Subsequently, combined with the actual development of China’s electricity market, it explores three key issues affecting the construction of cost-sharing mechanisms for energy storage under market conditions: Market participation forms, investment and operation modes, and cost recovery mechanisms. Finally, in line with the development expectations of China’s future electricity market, suggestions are proposed from four aspects: Market environment construction, electricity price formation mechanism, cost sharing path, and policy subsidy mechanism, to promote the healthy and rapid development of China’s energy storage industry.

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DOI: 10.32604/ee.2024.051554
REVIEW
Energy Storage Operation Modes in Typical Electricity Market and Their
Implications for China
Junhui Liu1, Yihan Zhang1,ZijianMeng
2,MengYang
1,YaoLu
1,ZheChai
1and Zhaoyuan Wu2,*
1State Grid Henan Economic Research Institute, Zhengzhou, 450052, China
2School of Electrical and Electronic Engineering, North China Electric Power University, Beijing, 102206, China
*Corresponding Author: Zhaoyuan Wu. Email: wuzy@ncepu.edu.con
Received: 08 March 2024 Accepted: 19 April 2024 Published: 19 August 2024
ABSTRACT
As the Chinese government proposes ambitious plans to promote low-carbon transition, energy storage will play
a pivotal role in China’s future power system. However, due to the lack of a mature electricity market environment
and corresponding mechanisms, current energy storage in China faces problems such as unclear operational
models, insufficient cost recovery mechanisms, and a single investment entity, making it difficult to support the
rapid development of the energy storage industry. In contrast, European and American countries have already
embarked on certain practices in energy storage operation models. Through exploration of key issues such as
investment entities, market participation forms, and cost recovery channels in both front and back markets, a
wealth of mature experiences has been accumulated. Therefore, this paper first summarizes the existing practices
of energy storage operation models in North America, Europe, and Australia’s electricity markets separately from
front and back markets, finding that perfect market mechanisms and reasonable subsidy policies are among the
main drivers for promoting the rapid development of energy storage markets. Subsequently, combined with the
actual development of China’s electricity market, it explores three key issues affecting the construction of cost-
sharing mechanisms for energy storage under market conditions: Market participation forms, investment and
operation modes, and cost recovery mechanisms. Finally, in line with the development expectations of China’s
future electricity market, suggestions are proposed from four aspects: Market environment construction, electricity
price formation mechanism, cost sharing path, and policy subsidy mechanism, to promote the healthy and rapid
development of China’s energy storage industry.
KEYWORDS
Electricity market; energy storage operational mode; cost-sharing mechanism
1Introduction
Under the “Dual Carbon”target, the high proportion of variable energy has become the inevitable
trend of power system, which puts higher requirements on system flexibility [1]. Energy storage
(ES) resources can improve the system’s power balance ability, transform the original point balance
into surface balance, and have important significance for ensuring the low-carbon safe operation
of new power systems. In this context, various forms of new energy storage, such as centralized
and distributed, are gradually permeating through various links of the power system [2]. Diversified
energy storage, through charging during low-load periods and discharging during high-load periods,
can address the issue of temporal and spatial mismatches in electricity supply and demand, thereby

2410 EE, 2024, vol.121, no.9
optimizing flexibility resource allocation, improving system operational efficiency, and demonstrating
greater potential in providing rapid frequency response, flexible regulation, and virtual inertia support
for auxiliary services [3]. However, with the rapid growth of new energy storage, existing projects have
gradually exposed weaknesses such as single operational models, disconnected market mechanisms,
and lack of economic viability, which are not conducive to the further development of the energy
storage market. As China accelerates the construction of its electricity market, changes are expected
in investment entities, market access mechanisms, cost recovery channels, and other aspects compared
to existing mechanisms. Therefore, it is necessary to explore energy storage operation models that are
adapted to China’s national conditions in anticipation of the future development of China’s electricity
market.
In the academic realm, scholars from various countries have conducted extensive research on
different operational strategies [4,5], revenue sources [6,7], value allocation [8,9], and economic
evaluations [10,11] of energy storage under different operation modes. Reference [4] establishes a
performance evaluation index system for peer-to-peer energy sharing mechanisms and analyzes three
common modes: supply-demand ratio (SDR), middle-market rate (MMR), and bill sharing (BS),
indicating that the MMR mechanism performs well under moderate PV penetration levels. Reference
[5] investigates the equilibrium state of supply-demand flow in a peer-to-peer market model for
residential shared energy storage units and proposes a method for service pricing and load dispatching.
Through case simulations, it is demonstrated that the point-to-point commercial model is beneficial
for both shared energy storage and users. Reference [12] presents a tri-layer model for managing a
competitive electricity market in the presence of microgrids and demand response (DR) aggregators,
effectively increasing user comfort and reducing total operating costs by simultaneously considering
system stability and the users’ comfort index (CI). Other scholars have also conducted research on
energy storage operating modes at different grid connection points, as shown in Tabl e 1 .
Table 1: Research outcomes related to energy storage operation modes
ES location Article
number
Primary participating
market types
Sources of revenue
Spot
market
Long term
market
Ancillary
services
market
Peak-to-valley
price arbitrage
FR Capacity
reserve
Others
Generation
side
[13]√√√
[14]√√√√
[15]√√
Grid side
[16]√√
[17]√√√
[18]√√√√
[19]√√
[20]√√ √√
[21]
[22]√√
[23]√√
(Continued)

EE, 2024, vol.121, no.9 2411
Table 1 (continued)
ES location Article
number
Primary participating
market types
Sources of revenue
Spot
market
Long term
market
Ancillary
services
market
Peak-to-valley
price arbitrage
FR Capacity
reserve
Others
[24]√√√√√
[25–27]√√√√
User side
[28]√√
[29,30]√√
[31]√√ √
Although existing theoretical research has explored the possibilities of diversified operation
modes for energy storage, there are still some shortcomings in guiding energy storage participation
in the Chinese electricity market. Therefore, academic research may not fully align with the future
development of energy storage markets in various countries. Consequently, the existing practices in
other countries hold greater reference value. In regions like the United States, Europe, and Australia,
operators have gradually explored and established relevant energy storage operation mechanisms
through incremental market practices. They have ensured the economic viability of energy storage
projects by combining improved market mechanisms with subsidy policies. This provides valuable
experience for the development of the Chinese energy storage market. However, China is currently
in a transitional period for spot markets, lacking a well-established investment mechanism for energy
storage and diverse revenue streams. It is essential to integrate the experiences of other countries
with the practical development of the Chinese electricity market. Therefore, analyzing energy storage
operation modes in other countries, drawing on their excellent practices, and combining them
with the actual exploration of China’s energy storage market development are necessary steps to
formulate a reasonable energy storage operation model. This will facilitate better promotion of energy
transformation and the healthy development of the power system.
The main innovations of this paper are as follows:
1) This paper provides an overview of the policy orientation and operational models of energy
storage in three typical foreign electricity markets: the United States, Europe, and Australia. It
compares the characteristics of energy storage operation policies in regional electricity markets
and their synergies with marketization. By comparing the market access mechanisms, cost recovery
channels, policy subsidies, and economic viability of energy storage projects in the front and back
markets of each country, it summarizes the advanced experiences of other countries in energy storage
operation models. The analysis points out that the improvement of electricity market mechanisms and
rational subsidy policies are crucial for the economic viability of energy storage projects and are also
key issues to focus on in the future development of energy storage operation models in China.
2) Based on summarizing the historical development and current situation of China’s electricity
marketization and analyzing the existing practical experience in typical power systems, this paper
identifies the key issues of the cost guidance mechanism for energy storage under market conditions:

2412 EE, 2024, vol.121, no.9
forms of energy storage participation in the market, energy storage operation and investment modes,
and energy storage profit models. On this basis, it further points out the existing problems in the current
development of China’s energy storage market.
3) Addressing the design issues of cost sharing mechanisms for adapting to China’s market-
oriented development of energy storage, this paper proposes policy suggestions to promote the devel-
opment of the energy storage industry from aspects such as electricity price formation mechanisms,
cost sharing targets, and compensation mechanisms. It particularly emphasizes the need to formulate
adaptive cost sharing mechanisms for different stages of market-oriented development.
Hopefully, the research aims to summarize valuable experiences from energy storage practices
in various countries, identify key factors needed to adapt to China’s electricity marketization. Addi-
tionally, it provides valuable references for the comprehensive development of the new energy storage
industry under the background of market-oriented reforms.
2Operation Modes of ES in Typical Electricity Markets
In recent years, with changes in the international situation and grid demand, energy security
independence has become a universal consensus globally. In order to promote energy transition and
accelerate the construction of an energy security system, the United States [32–35], the United King-
dom [36–39], Germany [40–43]andChina[44,45] have successively proposed a series of policy bills to
promote the development of the energy storage industry, vigorously supporting the development of
various types of energy storage industries. As of the end of 2022, the cumulative global energy storage
installed capacity reached 237.2 GW, with an average annual growth rate of 15% [46]. Considering
the urgent need for global energy development transformation due to climate change and regional
conflicts, it is expected that the global energy storage industry will continue to flourish within a certain
range.
With the expansion of the energy storage market and the evolution of application scenarios, energy
storage is no longer limited to a single operating mode. Depending on the location of integration,
many countries have gradually developed two main market operating models for energy storage:
front-of-the-meter (FTM) and behind-the-meter (BTM). The operation mode of energy storage in the
pre-market is highly related to different dispatch plans and is aimed at centralized markets, usually
corresponding to grid-side energy storage and generation-side energy storage in China. The post-
market energy storage mainly refers to batteries owned by residential users or businesses, and is
mainly aimed at distributed markets, similar to user-side energy storage in China. The definitions
and differences of different energy storage markets are shown in Table 2.
Globally, the markets where energy storage development is particularly rapid are the United
States, Europe, and Australia. The United States predominantly focuses on centralized storage, while
the latter two emphasize distributed energy storage. Various countries have explored a great deal in
areas such as investment entities for energy storage, cost recovery, and subsidy policies. In contrast,
China does not yet have a mature energy storage operating mechanism, and both centralized and
distributed energy storage are still in the early stages of development. Therefore, it is necessary to refer
to the development paths and policy guidance methods of energy storage markets in typical electricity
markets, and explore a future energy storage development model that is suitable for China’s national
conditions. This section will explore the differences and similarities in different market transaction
mechanisms, investment entities, and cost recovery aspects in the FTM and BTM markets, taking the
United States, Europe, and Australia as examples.

EE, 2024, vol.121, no.9 2413
Table 2: Comparison between FTM and BTM
Operation mode FTM BTM
Definition Energy storage on the grid side and
generation side
Energy storage on the user side
Target market Centralized market Distributed market
Investor entities Power grid companies, new energy
power generation companies
Residential users or industrial
and commercial business owners
Services provided Peak shaving and frequency
modulation, reserve capacity, voltage
support, line congestion relief,
equipment upgrade delay, power
output adjustment, unit construction
delay, power time shift
Time-of-use price arbitrage,
flexible load, reliability services
Cost recovery channels Ancillary service market, backup
market, electric energy market, policy
subsidies
Electric energy market, policy
subsidies
2.1 Operation Modes in United States
Constrained by the high costs of energy storage technology and the corresponding inadequate
supportive policies, the widespread application and promotion of large-scale energy storage before
2016 remained extremely challenging in the United States [47]. However, with the gradual improvement
of relevant policies, the United States has gradually formed two energy storage markets depending on
different application scenarios. The application scenarios of energy storage in the United States are
also discussed in terms of front-of-the-meter and behind-the-meter. The operating scope of front-of-
the-meter energy storage market mainly includes peak shaving, frequency regulation, and ancillary
services markets, spot energy market, and renewable energy generation side energy time shifting and
friendly access; while the operating scope of behind-the-meter energy storage market mainly includes
household energy storage and commercial and industrial user energy storage.
Due to the United States being divided into multiple electricity markets based on regional oper-
ators, the participation mechanisms and subsidy policies for energy storage also vary. Representative
examples include the PJM market, CAISO market, and ERCOT market. Specifically, the PJM market
is in Pennsylvania-New Jersey-Maryland, the CAISO market is in California, and the ERCOT market
is in Texas. The market participation of energy storage in different regions is shown in Table 3.
As shown in Tabl e 3 , the revenue of front-of-the-meter energy storage in the United States is
mainly driven by market competition under a market-based mechanism, with large-scale energy
storage actively participating in the market for rapid frequency regulation. Policy subsidies are not yet
prominent, mainly because CAISO, PJM, and ERCOT are all deregulated electricity markets under
the jurisdiction of Independent System Operators (ISOs). However, the growth of behind-the-meter
energy storage in the United States relies to a large extent on government subsidies, with each state
having relevant policies for tax deductions or subsidies for demand-side energy storage investment
projects.

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Table 3: Comparison of market participation in energy storage in different regions of the US
Markets that energy storage
participates in
Market type PJM CAISO ERCOT Whether it is
subsidized
Spot energy market FTM √√ ××
Frequency modulation capacity
market
FTM √√ √ ×
Joint operation of energy storage
and new energy
FTM √√ √ ×
User-side energy storage BTM √√ √ √
2.1.1 FTM Market in United States
The revenue growth of the front-of-the-meter energy storage market in the United States mainly
comes from two sources: participation in frequency regulation and other ancillary service markets and
the spot energy market, and joint operation with renewable energy generators.
At present, the most common application of front-of-the-meter energy storage in the United States
is in frequency regulation ancillary service markets, which are the most significant capacity markets,
and the economic viability of energy storage in frequency regulation ancillary service markets has
been fully validated. Among them, the PJM market mainly focuses on electricity markets (capacity
markets); the CAISO market mainly focuses on energy markets; and the ERCOT market’s market
design only pays for energy, not capacity fees. Unlike the CAISO and PJM markets, the ERCOT
market in Texas is not designed for real-time spot markets, only planning for the next day’s electricity
usage. In addition, energy storage in the ERCOT market mainly relies on ancillary service markets
to solve the problem of electricity market energy imbalances and frequency fluctuations and generate
revenue.
Although the theoretical application range of energy storage is very broad, and Order 841 fully
supports energy storage to participate in various markets [34], energy storage has not been widely
operated in the US energy and capacity markets. This is because the cost of energy storage in the
wholesale energy market and capacity market is difficult to determine, and there are contradictions
between income and expenditure; energy storage investors consider the market economics and policy
subsidy levels related to the operation of energy storage, and are currently in a wait-and-see mode.
2.1.2 BTM Market in United States
The operation modes of behind-the-meter energy storage markets include residential energy
storage users and commercial and industrial energy storage users. According to statistics, in 2020,
household energy storage installations increased by 154 MW, a year-on-year increase of 63%, account-
ing for 15% of the total new installations that year; commercial and industrial energy storage
installations increased by 55 MW, a year-on-year decrease of 24%, accounting for 5% of the total
new installations that year [48]. The growth trends and future forecasts of various types of energy
storage in the United States from 2021 to 2023 are shown in Fig. 1. Observation in the figure shows
that the growth of household user-side energy storage is second only to energy storage participation
in ancillary services markets and has become the second-largest energy storage market in the United
States; in contrast, the demand for industrial energy storage is gradually decreasing.

EE, 2024, vol.121, no.9 2415
Figure 1: Growth trends and future forecasts of various types of energy storage in the United States
from 2021 to 2024 [49]
The growth of behind-the-meter energy storage is driven by the need for power reliability and related
incentive policies. The development of the US behind-the-meter market is mainly due to two reasons:
one is the growth of demand-side energy storage due to the instability of the US power grid. The strong
independence of the US power grid in different regions makes cross-regional scheduling difficult, and
high electricity consumption peaks can easily cause local grid frequency fluctuations and transmission
blockages, especially in 2021, due to the pandemic and extreme weather, which further affected the
power reliability of end-users, and the demand for end-user emergency energy storage gradually
increased. Second, the United States has adopted certain welfare policies for installing energy storage.
Users who install energy storage can be exempted from some taxes, which is equivalent to reducing
the investment cost of energy storage. For example, the Self-Generation Incentive Program (SGIP)
initiated by the United States in 2001 has been continuously revised over the years and has increased
its budget for energy storage. In August 2018, the California State Assembly passed the SB700 bill,
extending the SGIP program to 2026, to continue to incentivize the construction of more distributed
residential energy storage projects [50].
The economic viability of household energy storage has promoted the rapid development of residential
photovoltaic (PV) systems with energy storage. According to statistics from the Berkeley Lab, as of 2020,
the installed capacity of behind-the-meter energy storage is approximately 1000 MW, of which 550 MW
is paired with solar PV, and currently 80% of household energy storage is installed bundled with solar
PV. In terms of policy, the federal and state governments provide different levels of tax offsets and
rebates for installing solar PV systems, reducing the construction costs of residential energy storage for
self-use. Economically, residents can store electricity during good sunlight and low electricity prices,
reduce the amount of electricity purchased at high prices at night, greatly save their own electricity
costs, and also provide benefits to the entire power system.
Overall, the overall growth demand for commercial and industrial energy storage in the United
States is slightly lower than that of household energy storage. Contrary to the domestic electricity price
mechanism, the industrial and commercial electricity prices in the United States are lower than the
residential electricity prices, so residential users have a stronger inclination to install energy storage.

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Except for the CAISO market in California, the installation of energy storage in most other electricity
markets is greater in residential areas than in commercial and industrial areas.
2.2 Operation Modes in European
The European electricity market has been an early mover in the development of renewable energy
and energy storage. However, the fundamental national conditions and policies of the United Kingdom
and Germany have led to markedly different focuses in the development of energy storage markets.
For example, in the United Kingdom, energy storage is mainly distributed in front-of-the-meter
markets and focuses on the construction of markets where energy storage provides ancillary services.
In Germany, energy storage is mainly involved in behind-the-meter markets, with user-side distributed
energy storage leading the world. At the same time, Australia has experienced rapid growth in solar
photovoltaic development, leading to a significant increase in the scale of customer-side energy storage,
and it has also initiated certain practices in the behind-the-meter market. Therefore, this section
examines the energy storage operation models in the European electricity markets, focusing on the
representative cases of the United Kingdom and Germany, while also considering Australia’s behind-
the-meter market. Therefore, this section analyzes and studies the energy storage operation modes in
European electricity markets with the United Kingdom and Germany as representatives.
2.2.1 FTM Market in European
The United Kingdom is the largest front-of-the-meter energy storage market in Europe, with large-
capacity installations mainly participating in ancillary services markets. The main functions of energy
storage in front-of-the-meter markets include peak shaving, frequency regulation, acting as a backup
power source, renewable energy integration, and flexible loads.
In the United Kingdom’s energy storage market, the main source of income for new energy storage
systems on the generation side is providing frequency control reserves (FCR) services. Participation in the
energy market to obtain clearance revenue is not the main source of income for energy storage in the
United Kingdom. Energy storage mainly obtains revenue by providing ancillary services to the grid or
helping renewable energy generators to integrate into the grid. As shown in Tabl e 4, approximately 48%
of the United Kingdom’s large-scale front-of-the-meter energy storage systems are used for frequency
control, followed by 26% in capacity markets, and 13% in the renewable energy grid integration
field [51].
Table 4: Revenue share statistics of front-of-the-meter energy storage applications in the UK
UK FTM application scenarios System frequency control Capacity market Renewable energy
grid integration
Proportion 48% 26% 13%
The marketization process of the UK’s power sector started early, and the operation modes and
revenue of energy storage in front-of-the-meter markets are diverse. Table 5 shows the main sources of
revenue from energy storage in the British electricity market. Currently, the most mature development
in the UK is energy storage’s participation in frequency regulation and reserve markets, where energy
storage provides frequency control reserves (FCR) with high and stable value. Although the revenue
from frequency regulation services is high, the demand for it is limited, and the market capacity is
usually only a few hundred or a few thousand megawatts. Compared with the demand for energy

EE, 2024, vol.121, no.9 2417
storage for short-term operational reserves (generation capacity or load reduction) or energy arbitrage,
which is tens to hundreds of times lower.
Table 5: Sources of income from energy storage in the British electricity market [52]
Market category Main revenue sources Methods of entering the
market
Market capacity
Frequency response
Enhanced frequency
response
Bidding (ancillary services) 200∼700 MW
Fixed frequency response Bidding (ancillary services) 2000∼3000 MW
Demand side response Bidding (ancillary services) –
Reserve
Rapid reserve capacity Bidding (balancing service) ≥100 MW
Customer reserve power Contract –
Short-term operating
reserve capacity
(generation capacity or
load reduction)
Bidding (balancing service) 2∼4GW
Capacity market Bidding—capacity auctions GWs
Time shift/arbitrage
Generator
self-consumption
Avoid market participation
through electricity price or
cost
GWs
Generators curtail
electricity
Participate in the market
through electricity prices or
subsidies or avoidance of
renovation costs
GWs
Price arbitrage Take advantage of price
fluctuations to participate in
the market
GWs
The value of energy storage obtaining clearance revenue in the UK energy market or through
energy price arbitrage is not stable, and the participation of energy storage in the energy market system
has not been fully established. This is different from the United States, where front-of-the-meter energy
storage markets tend to develop both day-ahead energy markets in trading centers and ISO-scheduled
ancillary service markets. However, it is worth noting that the UK is promoting the establishment
of a spot market system that can reflect the scarcity of flexibility across time periods. When the price
difference increases, the arbitrage value of energy storage participating in the day-ahead energy market
is expected to be more fully demonstrated.
2.2.2 BTM Market in European and Australia
1) Germany
In contrast to the United Kingdom, Germany is leading the way in the development of new energy
storage in behind-the-meter markets, with the growth of energy storage in the behind-the-meter market

2418 EE, 2024, vol.121, no.9
far exceeding that in the front-of-the-meter market. Germany is the country with the widest range of
user-side energy storage operation modes in Europe and even globally.
New energy storage has the highest growth rate in Germany’s behind-the-meter market, with house-
hold PV storage being the main operating mode of energy storage behind-the-meter. The development of
user-side photovoltaics and high retail electricity prices provide space for the behind-the-meter market.
In 2020, 92% of the newly installed capacity in Germany came from behind-the-meter energy storage.
Taking Germany as an example, the average cost of electricity purchases for households in 2020 was
0.314 $/kWh, and it is trending upward. At the same time, the levelized cost of electricity (LCOE) for
household PV storage systems continues to decrease [53]. Currently, Germany is promoting policies
to subsidize household PV storage equipment, aiming to increase the utilization rate of household PV
storage, promote the self-use behind-the-meter energy storage operating model, and offset the high
electricity costs.
In summary, household PV storage is the main operating mode of behind-the-meter energy storage
in Germany, and it has certain economic viability in increasing self-consumption rates.
2) Australia
Australia is the world’s second-largest behind-the-meter PV storage market after Germany. Due
to Australia’s abundant natural light resources and high electricity prices, the development of PV
power generation, microgrid energy storage, and user-side PV storage combined projects has developed
rapidly, with a large number of users installing PV systems [54]. In the future, the Australian
government will continue to provide subsidies and low-interest loans for users who install PV storage
systems to reduce the installation and investment costs of energy storage. The installed capacity of
behind-the-meter energy storage in Australia is expected to continue growing, as shown in Fig. 2.
Figure 2: The number of new residential energy storage installations and installed capacity in Australia
from 2016 to 2022
The value and income of household PV storage in Australia come mainly from two aspects. One
is the income from self-use of electricity stored by household PV storage equipment, saving electricity
costs by storing energy during the day and releasing it during peak hours when electricity prices are

EE, 2024, vol.121, no.9 2419
high at night. The other is the battery subsidy (South Australia government) and tax refund (Victorian
government) policies, which to a certain extent ensure the cost recovery of energy storage equipment
within a limited number of years.
In addition, to promote the diversified development of energy storage projects, energy storage
transactions in Australia’s National Electricity Market (NEM) have also begun to grow rapidly, with
the main value coming from emergency frequency regulation in the Frequency Control Ancillary
Service (FCAS) market [55]. The revenue of energy storage in the ancillary services market has
experienced a significant increase, as shown in Fig. 3. It can be seen that the revenue of energy storage
in the energy market, although accounting for a small percentage, has also increased. This is because as
large-scale renewable energy is introduced into the electricity market, the price fluctuations in different
time periods in the energy market are gradually increasing, providing more opportunities for energy
storage to arbitrage in the energy market.
Figure 3: The revenue of energy storage in the Australian electricity market [56–58]
2.3 Comparison of Operation Modes in Different Countries
Based on the different national conditions, the types of energy storage development markets,
sources of income, trading objects, and policy subsidy focuses represented by the United States, the
United Kingdom, Germany, and Australia are not entirely consistent, as shown in Tabl e 6.
The cost of energy storage in the US front-of-the-meter market is primarily recovered from
transactions in the auxiliary service market and the spot energy market. The existing mechanism allows
energy storage to declare charging and discharging quantities and selling prices in the market, and the
market can spontaneously guide energy storage to realize its own frequency regulation value. The
United States has more laws aimed at promoting market mechanism improvement and reform, rather
than simple policy incentives [34,59,60], and the centralized large-scale energy storage in the United
States has already had good returns under a mature market mechanism. In recent years, some energy
storage incentive policies have mainly targeted user-side distributed energy storage.

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Table 6: Comparison of energy storage operation models in different countries
Nations US UK Germany Australia
Main income
sources of energy
storage
Frequency
modulation
service;
Independent
participation in
market
competition;
Joint operation of
energy storage and
variable energy
generators
Frequency control
service (FCR)
Policy subsidies BTM: Policy
subsidies
FTM:
Emergency
frequency
modulation
Main market types
involved
Ancillary service
market;
Ancillary services
market (capacity
market)
– Ancillary services
market (capacity
market)
Spot energy market
Transaction objects
suitable for energy
storage
Grid side > VRE
generation
companies > users
> industrial and
commercial
Independent
energy storage,
VRE generation
companies
Users Users > Grid
Support policies
and subsidies
Self-generation
incentive plan
(SGIP) [61]
Multiple benefits
stacking policy for
energy storage
[62–64]
Household
photovoltaic
energy storage tax
exemption and tax
refund policy [64]
Home battery
system subsidy
plan [55]
Main energy
storage types
Energy storage in
front of the meter
Energy storage in
front of the meter
User-side energy
storage
User-side energy
storage
The revenue of energy storage in the UK front-of-the-meter market mainly comes from indepen-
dent energy storage or energy storage jointly participating in the capacity market to obtain frequency
regulation benefits, and the contribution of the energy market to energy storage cost alleviation is
relatively small. The UK market generally does not recognize direct investment and utilization of
energy storage by the system operator, often requiring energy storage to act as a market subject to
play a frequency regulation role in the system.
The economic viability of energy storage in the German behind-the-meter market is obviously
insufficient, and the methods of earning income through peak-valley arbitrage in the electricity market
or participating in frequency regulation auxiliary markets are not mature. The leading energy storage
project in Germany is household photovoltaic storage, relying on policies such as time-of-use electricity
prices, government tax exemptions, and tax exemptions. Users can fully recover the cost in about 5
years by increasing the rate of self-use. It already has certain economic viability.
The development of household energy storage in Australia has been going on for a long time,
and its value mainly comes from two aspects: self-use and policy subsidies. It can guarantee that

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the household self-use energy storage system can recover the cost in a few years with a relatively
short period. In addition, as large-scale renewable energy is integrated into the Australian electricity
market, fluctuations in electricity prices in the energy market are gradually increasing, and the energy
transaction and frequency capacity trading of energy storage participating in the electricity market are
also rapidly increasing. The economic viability of energy storage in the market remains to be further
observed. By comparison, pioneering countries in energy storage development such as the United
States have mainly supported energy storage development through policies such as setting energy
storage planning goals, fostering local industry chain technological innovation, providing financial
and tax incentives, offering funding support, and developing electricity market transaction varieties
adapted to energy storage [47]. By improving market mechanisms to form price signals, it effectively
promotes the diversified roles of energy storage and ensures partial revenue. Meanwhile, diversified
subsidy policies guarantee the recovery of fixed costs for energy storage, thereby effectively improving
the economic viability of energy storage projects. In contrast, China’s development in new energy
storage started relatively late, and currently, the economic viability and utilization rate of most energy
storage projects are not ideal.
Drawing on the analysis of typical power systems’ existing experiences, this paper tentatively
proposes several aspects for future energy storage construction in China. Firstly, it should explore the
rational positioning of energy storage roles and the status of market entities to clarify the direction of
future energy storage development. Secondly, it should appropriately relax investment and operational
restrictions on energy storage and continuously explore and improve market rules in areas such as
capacity markets to provide a foundation for future energy storage operation models. Thirdly, it
should, at this stage, learn from subsidy models in countries like the United Kingdom and consider
expanding energy storage benefits through combined policies to ensure the reasonable recovery of
energy storage investments.
However, it should be noted that due to differences in national conditions, the operational
experience of typical electricity markets must be adjusted to adapt to the future development of
China’s electricity market. It is necessary to conduct adaptive analysis on market participation forms,
investment models, and revenue models in the Chinese market environment to develop energy storage
operation models adapted to China’s power system’s low-carbon transformation.
3Key Issues of Cost Sharing Mechanism for Energy Storage under Marketization Context
With the continuous integration of new energy sources such as wind and solar power, energy
storage will undertake diverse functions in future power systems. These include smoothing power
output and peak shaving on the supply side, alleviating congestion and deferring capacity expansion
on the grid side, and peak shaving, valley filling, capacity management, and enhancing reliability on
the user side. The vigorous development of new energy storage characterized by “short, flat, and fast”
traits will provide a powerful complement to China’s grid operation, improving power supply levels,
facilitating the integration of new energy sources, and enhancing system peak-shifting capabilities
[47]. In this context, the design of a rational energy storage market mechanism is of paramount
importance for promoting the orderly transformation of the power system and ensuring its safe and
stable operation.
In the process of designing electricity market mechanisms, the cost-sharing mechanism for energy
storage stands out as one of the key issues. Under the market environment, the key issue of energy
storage cost guidance is a crucial problem in the design of the electricity market mechanism. In the
process of continuously promoting the construction of a new type of electricity market and the reform

2422 EE, 2024, vol.121, no.9
of the electricity market mechanism in China, it is urgent to explore market mechanisms applicable to
energy storage participating in market operations. Combined with the current situation of domestic
and foreign markets and existing research, this section summarizes the four key elements that need to
be considered in the design of energy storage cost sharing mechanisms, as shown in Fig. 4.
Figure 4: Energy storage cost channeling mechanism design framework
3.1 Forms of Market Participation
In the process of energy storage investment and construction, the form of market participation
is one of the important factors affecting its functional positioning and cost recovery capability. For
large-scale energy storage facilities represented by pumped-storage power stations, due to their high
investment costs and the ability to exert a large-scale regulation effect, they are mostly invested and
operated independently by grid operators, participating in market transactions in a centralized manner.
With the rise of distributed energy storage, on the one hand, a large number of small-scale energy
storage systems are connected to the grid; on the other hand, distributed energy storage involves
complex investment and operation relationships, and profits are obtained through market competition
among different entities rather than centralized dispatch. Therefore, in the future marketization
process, it is necessary to determine a reasonable cost-sharing mechanism based on two different
market participation forms: centralized and distributed.
Currently, in China, the participation of energy storage systems in the market has mainly been
dominated by independent investment and centralized dispatch by the grid. The advantage is that it
can unify planning and manage the supply and demand of system electricity, and the scenarios of use
are richer and the number of uses is more frequent, and the utilization rate of energy storage equipment
is higher; the disadvantage is that the funding pressure and capital recovery pressure of the power grid
company as the sole investment subject are greater, and no effective way other than the determination
of transmission and distribution electricity prices has been found to recover the investment cost of
energy storage, which cannot support the long-term construction of energy storage, and its income
does not fully reflect the multiple values that the power station actually plays in the system.
With the increase of the number of energy storage entities and the installed capacity, the trend of
independent energy storage as the market main body participating in market competition is inevitable.

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On 1 June 2022, China’s National Development and Reform Commission and other nine departments
jointly issued a notice on the issuance of the “14th Five-Year Plan” for renewable energy development.
The “Plan” pointed out: It should promote the scale application of other types of new energy storage
outside of grid-side centralized energy storage. Define the independent market position of new energy
storage, design appropriate market electricity pricing, declaration, and transaction mechanisms for
energy storage participation. Maximize energy storage value in peak shaving, valley filling, peak
regulation, frequency regulation, promoting renewable energy consumption, backup support, and
encourage multi-scenario applications across supply, grid, and user sides. In other countries, the British
electricity market requires energy storage to participate as the market main body and generally does
not accept direct investment and dispatch of energy storage resources by system operators [65].
Furthermore, the scenarios where distributed energy storage appears as a market participant are
becoming increasingly diverse. Due to objective constraints, the development progress of distributed
energy storage as the main participant in the market is significantly higher in other countries than in
China. In the 2018 Federal Energy Regulatory Commission (FERC) 841 Act [34], the capacity access
threshold for the market main body status of energy storage was reduced to 100 kW; in recent years, the
UK has also gradually lowered the threshold for the participation of energy storage to 1 MW [66]. The
lower access threshold for foreign electricity markets has greatly increased the number of distributed
energy storage operators participating in the entire market, giving small-capacity distributed energy
storage and other members equal market status, helping various types of energy storage operations
reasonably allocate energy storage resources in a competitive manner, but at the same time, higher
requirements are also placed on market mechanism design, so that distributed energy storage can
effectively recover on the generation side, the demand side, and the grid side, respectively.
3.2 Operation and Investment Modes under the Influence of Electricity Price Mechanisms
In the process of electricity market development, changes in electricity price mechanisms reflect
the evolution of market competition and related mechanisms, directly impacting the operation and
investment models of energy storage. Typically, based on differences in regulatory policies and
electricity price mechanisms at different times, the operation models of energy storage stations can
be categorized into three types: grid integration, leasing, and independent operation.
From the development history of electricity prices abroad, there are different electricity price
formation mechanisms in different stages of the electricity market. The early, middle, and mature stages
of the electricity market respectively adopt two-tier electricity prices, the price formation mechanism
of “fixed income +variable bidding”, and the completely marketized electricity price formation
mechanism.
China’s electricity market is still in the initial stage, mainly based on grid-determined electricity
prices and two-tier electricity prices, and has not yet formed a completely marketized electricity price.
Since China first proposed the reform of the power system in 2002, after 20 years of exploration,
market-oriented electricity prices have become an important lever to guide market participants to
invest and operate. China has tried some electricity price reforms, such as the implementation of
time-of-use electricity prices and stepped electricity prices, but China’s electricity prices have not
yet completed market-oriented transformations. Therefore, it is of great significance to formulate
appropriate electricity price formation mechanisms for energy storage to obtain benefits in the electric
energy market and guide energy storage investment [67,68]. Fig. 5 shows the relevant policies and
changes in the electricity price mechanism in China.

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Figure 5: Changes in policies and electricity price mechanisms related to Chinese energy storage market
Energy storage power stations are capital-intensive systems, with high construction costs and
long payback periods. Large-scale, long-term energy storage projects are not attractive to most social
enterprises and investors. Initially, most domestic energy storage projects were funded and constructed
by grid companies, with costs recovered through transmission and distribution pricing. However, the
fairness and rationality of this approach were questioned and it was revised and improved twice.
China’s policy reforms in 2011 and 2019 clearly stipulated that grid investment in energy storage should
not drive-up social electricity prices and should not affect the cost of transmission and distribution
electricity pricing.
Before 2021, most energy storage projects relied mainly on single-capacity pricing for investment
recovery, with little use of two-part tariffs. As of now, China has not yet developed a mature electricity
market mechanism, and the operating and pricing mechanisms of new types of energy storage can
refer to pumped storage plants, with two-part tariffs being the main mode of operation. Under this
model, energy prices are determined through market competition and market clearing, while capacity
prices are collected through transmission and distribution pricing. At the same time, it is necessary
to promote the development of underlying electricity markets and to promote the good connection
between energy storage and the market.
As demand for energy storage from the power system and the market continues to grow, it
is imperative to attract more social capital outside of grid companies to invest and to drive the
commercial development of energy storage. Therefore, considering the operating mode and profit
channels of energy storage, designing a reasonable pricing mechanism and implementing it is crucial.
Allowing energy storage to participate in market competition as an independent entity, to develop
its own capacity allocation plan for energy and frequency support services, and to maximize its own
economic profits, are essential for cost recovery and attracting external investment.

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3.3 Income Sources and Existing Problems
Energy storage in China currently falls into two main categories: grid-side storage, directly
invested and operated by grid companies, and source-load-side storage, invested by third parties for
profit. Under the current dual-pricing system, energy storage profits mainly include capacity income,
electricity income, and ancillary services income, achieved through reducing the demand for thermal
power capacity, peak-valley price arbitrage, and providing ancillary services. From the perspective
of market participants, when energy storage plays a role in ensuring the safe and stable operation
of the power system, promoting the absorption of clean energy generation, and reducing the cost of
power generation, transmission, and distribution for the system, it will radiate differentiated value to
different subjects, including power sources, power grids, and users, and these beneficiaries have the
responsibility to work together with energy storage to achieve cost recovery.
However, under the current market mechanism, the profitability of China’s energy storage projects
is still relatively low. In terms of grid-side energy storage, the current investment entities and cost
recovery methods for energy storage are relatively single. Although the investment cost of energy
storage is generally considered in the formulation of market transmission and distribution electricity
prices, under the constraints of national policies, the formulation of electricity prices needs to consider
benefiting the people, which is not conducive to the profitability of energy storage itself, and grid
companies face great investment pressure. In terms of source-load-side energy storage, its income
mainly comes from the electricity market and ancillary services market. At the level of the electricity
market, the current market mechanism in China has a small difference in time-of-use electricity prices,
so the arbitrage value of energy storage charging and discharging is small, which is not compatible with
the balancing value of electricity brought to the market. At the level of the ancillary services market,
there is greater uncertainty in the volume and price of energy storage participating in peak load and
frequency regulation, which depends on policy subsidies, and the scale of energy storage participating
in the ancillary services market is limited, which is not compatible with the actual adjustment value
it plays in the ancillary services market. Generally speaking, the current cost recovery of energy
storage projects is highly dependent on policy subsidies, and the specific ancillary service income
depends on the compensation for energy storage frequency regulation miles, capacity compensation,
and compensation for improving user power quality formulated by relevant standards.
Facing the profitability dilemma of energy storage, some scholars have proposed to explore
the profitability of energy storage through the business model of shared energy storage. “Shared
energy storage”is a large independent energy storage aggregation merchant invested, constructed, and
operated by a third party or a specific manufacturer, and is rented to demand-side entities such as new
energy power stations and users to obtain revenue through capacity leasing. It is more flexible to meet
the demand for power storage of different distributed market members. However, the fundamental
profit dilemma of energy storage lies in the mismatch between its high cost and the market electricity
price mechanism. The rent of shared energy storage to tenants cannot be higher than the benefits
of energy storage to tenants. Without a substantial technological breakthrough to significantly reduce
energy storage costs or the implementation of new supportive policies, achieving a closed-loop business
model remains challenging.
In order to solve the current profitability problem of energy storage in China, it is necessary to refer
to the practical experience of various countries to formulate a reasonable cost-guiding mechanism.
From the perspective of different market types, in relatively mature electricity markets abroad, power
source investment including the cost recovery of pumped storage is generally composed of electricity
market, ancillary services market, and capacity market [69]. Considering the connection with the

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electricity market, the latest “Opinions on Further Improving the Pricing Mechanism of Pumped
Storage” points out that energy storage power stations represented by pumped storage can obtain
income through three main channels of electricity price, ancillary services market, and capacity fee,
which are included in the transmission and distribution electricity price.
For China’s most widely used dual-pricing system, the external value of energy storage in the
market can be regarded as reflecting and radiating value through the electricity market and capacity
market, where the capacity market includes some functions of the ancillary services market. The cost-
guiding path of energy storage power stations under the dual-pricing system is shown in Fig. 6.
Figure 6: Cost relief path for energy storage power stations under the two-part electricity price system
Currently, some companies in the United States and Germany use the “lease-to-own” model
to serve users, promoting the interaction between distributed flexible energy storage resources and
the entire power system operation [70]. The main benefits of distributed energy storage in China
come from four parts: time-of-use electricity fee management, capacity fee management, improved
power supply reliability, and improved power quality. As the installed capacity of commercial and
industrial photovoltaics exceeds household photovoltaics, the benefits of energy storage have been
greatly improved, occupying the dominant position of revenue flow. Commercial and industrial users
can also obtain certain benefits through peak-valley price difference arbitrage, demand management,
backup power supply, electricity spot trading, and electricity auxiliary services, further reducing
enterprise electricity costs. However, the main problem with distributed energy storage remains the
lack of a clear business model, a lack of effective time-of-use electricity price mechanism, insufficient
user investment willingness, and difficult to support the vigorous development of distributed energy
storage.
4Analysis and Suggestions
Currently, the Chinese electricity market is still in its early stages, primarily transferring some of
the costs of energy storage to users through the formulation of transmission and distribution tariffs
by grid companies. However, a cost recovery method guided by price signals and unified market
mechanisms has not yet been established. Therefore, when designing relevant mechanisms for energy
storage participation in the Chinese electricity market, foreign models should not be directly applied.

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Instead, cost sharing methods should be designed according to the price mechanisms of different stages
of development in the Chinese electricity market, following the market evolution path.
4.1 Cost Sharing Path of ES in Different Stages of Marketization
Although the Chinese electricity market has not yet reached a mature stage, this section divides
the marketization process into three different stages based on the development status and trends of
foreign electricity markets. In different stages of marketization, there are similarities and differences
in the mechanisms for electricity price formation, market participation forms, and profit channels,
leading to gradual changes in the cost-sharing mechanisms for energy storage.
In the initial stage of electricity market construction, energy storage occupies a small market share,
and power stations use a two-part tariff. The cost sharing path of energy storage is transmitted to the
user side through the transmission and distribution price determined by the government. Users pay
electricity fees to the power grid company according to the electricity price. This part of the electricity
sales price includes two parts: electricity price and capacity price; the power grid company recovers
the investment cost of the energy storage power station through the electricity fee and capacity fee
paid by the user. In this stage, network-side energy storage can achieve a certain diversion of costs
according to the transmission and distribution price, while the profitability of third-party investment
source-load energy storage is limited by the difficulty of obtaining direct benefits from the electricity
price mechanism, and the cost diversion is difficult.
In the middle stage of the development of the electricity market, the construction of the ancillary
services market is still not perfect, and the energy storage power station can adopt the price formation
mechanism of “fixed income +variable bidding”. This mechanism can guarantee the income of the
energy storage power station to a certain extent and introduce the market mechanism to reflect the
objective value of the energy storage power station. The fixed income part includes compensation
for ancillary services and compensation for peak filling and valley power generation, which is shared
by power generation enterprises, power grids, and users; the transmission and distribution prices of
users and the transaction prices of power generation enterprises are determined by the government
annually and are uniformly paid to the power grid company, which is then paid annually to the energy
storage power station by the power grid company. The variable bidding part is determined by market
competition, and the remaining capacity participates in the bidding of electric energy market and
ancillary services market. This part of the additional income is directly transferred to the energy storage
power station by users and power generation enterprises in a certain proportion. At this time, the cost
of both network-side and source-load energy storage can be well diverted to various stakeholders, but
it is still subject to certain constraints of relevant policies and systems.
In the mature stage of the electricity market development, the energy storage power station
adopts a completely marketized price formation mechanism in the complete market system, and the
government does not participate in the determination of any stage of electricity price. The energy
storage system obtains many profit opportunities in the auxiliary services market and electric energy
market at different time dimensions such as day-ahead, real-time, etc., and obtains reasonable returns.
Through market competition, all participants in the market should provide a certain amount of funds
to the energy storage system according to market rules, including contract electricity price in the
medium and long-term market, electricity fees in the electric energy market, and ancillary service fees
in the backup and ancillary service market. All participants in the electricity market participate in cost
diversion, including users, various power generation enterprises, power grid companies, and electricity
sales companies. At this time, both network-side energy storage invested by power grid companies and

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third-party source-load energy storage invested by third parties can recover costs through multiple
markets and use reasonable and effective market mechanisms to divert energy storage investment and
construction costs to beneficiaries.
4.2 Policy Suggestions for ES Cost Sharing Mechanism in China
1) Gradually improve the domestic spot market mechanism, form electricity market clearing prices
and auxiliary service prices through market-oriented means. Enhancing market mechanisms helps to
establish reasonable price signals, incentivizing energy storage to profit from the market through
various services. It is recommended to reference the spot market mechanisms of typical electricity
systems in North America, Europe, and other regions to design electricity energy markets and ancillary
service markets suitable for China’s conditions, gradually, through market competition, achieve the
rational allocation of various generation resources and form electricity clearing prices and ancillary
service prices through market-oriented means. At present, we strive to use the time-of-use electricity
price mechanism to form peak-valley price difference income to fill capacity costs, increase the income
of energy storage itself; under the policy of two-part electricity price, ensure that new energy storage
participates in various markets, provides multiple services, and realizes the superposition of multiple
market income; in the long run, aim to compete in large-scale energy storage in the whole electric
energy market, use its market influence to form a larger electricity price difference to facilitate
obtaining income while peak shaving, no longer give capacity compensation to energy storage power
stations, and fully recover costs and obtain income through the market.
2) Formulate reasonable time-of-use electricity price mechanism to guide the orderly investment
of distributed energy storage. The distributed energy storage system has flexible access locations.
Referring to the development path of energy storage markets in countries such as Germany and
Australia, the proportion of household energy storage projects and light storage joint construction
projects will continue to increase in the future, and the potential market of distributed energy storage
is huge. The time-of-use electricity price in the domestic market is often determined by the power grid,
and the price difference between peak and valley hours is not large. Energy storage cannot fully recover
its own value by arbitrage income in the electric energy market. Therefore, it is recommended to draw
from the existing experience of electricity price mechanisms in typical power systems and formulate
more reasonable time-of-use electricity price mechanisms. This would help increase societal capital’s
willingness to invest in energy storage.
3) Strengthen the cost sharing path of energy storage by both supply and demand sides of the power
system. In the stage with low degree of marketization, energy storage cannot divert costs to all market
participants through the form of the market, and a relatively crude secondary allocation form can be
adopted to recover a part of the energy storage costs in advance: firstly, calculate the external value of
energy storage to power generation side and demand side, and actively include the three aspects of user
side, power grid side, and power source side into the market mechanism; secondly, within the power
generation side and demand side, each unit or user shall bear a part of the construction cost of the
energy storage power station according to the degree of demand or benefit from the energy storage,
and the cost borne by the unit or user shall not exceed 85% of the additional value.
4) Adaptation of the capacity compensation mechanism for energy storage. In the initial stages
of establishing a capacity market, it is recommended to consider compensation mechanisms from
regions such as North America and the United Kingdom. Governments and authoritative institutions
can provide differentiated capacity compensation based on the available capacity of energy storage
stations and related cost estimates. This will help energy storage stations expand their profit channels

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and recover fixed costs as much as possible in the early stages. As the capacity market mechanism
matures, it is advisable to gradually promote the marketization of energy storage transactions. Through
market competition, capacity compensation prices can be formed, and ultimately, these costs can be
distributed among all users through transmission and distribution tariffs.
5Conclusion
As the scale of new energy storage continues to expand and its diverse applications emerge,
it has become an inevitable trend to establish reasonable market mechanisms to meet investment
and construction needs. However, the current market mechanisms are not conducive to the proper
cost-sharing of energy storage and are difficult to support the large-scale investment and operation
of future new energy storage projects in China. Therefore, this paper first compares and analyzes
the energy storage operation mechanisms in three typical markets: the United States, Europe, and
Australia. It analyzes and explores feasible market operation experiences of these countries from
the perspectives of pre-market and post-market participation, operating modes, profit channels, and
other factors. Based on this analysis, it focuses on the development history of China’s energy storage
market participation forms, investment models, and profit channels, and summarizes the key issues
of cost-sharing mechanisms for energy storage under market conditions. Finally, it looks forward to
the cost-sharing paths under different stages of marketization and proposes policy recommendations
for cost-sharing mechanisms adapted to China’s electricity market development. The aim is to clarify
the diverse revenue channels of energy storage and the existing contradictions, and to address the key
issues of energy storage cost sharing under China’s current dual-pricing system.
The main conclusions of this study are as follows:
1) Analysis of typical foreign power systems shows that improved market mechanisms and
reasonable policy subsidies are essential for the economic viability of energy storage projects. The pre-
market relies more on a well-established market access mechanism and electricity pricing mechanism,
while the development of energy storage in the post-market is mainly driven by relevant subsidy
policies. With the acceleration of energy transition, it is necessary to promote the development of
energy storage in both pre-market and post-market simultaneously, by continuously improving market
mechanisms and exploring reasonable subsidy policies to ensure the economic viability of energy
storage projects.
2) The current cost guidance mechanism for energy storage in China faces a series of issues in
terms of market participation forms, operation and investment modes, and profit channels. There is a
need for further exploration of market participation approaches for centralized and distributed energy
storage, improvement of electricity pricing mechanisms, and expansion of profit channels for energy
storage to better adapt to the future marketization of China’s power sector.
3) Considering the different stages of power marketization in China, it is necessary to adopt
different market access mechanisms and energy storage subsidy policies according to the cost guidance
paths. This involves gradually improving market mechanisms, formulating reasonable electricity pric-
ing mechanisms, facilitating cost guidance paths on both supply and demand sides, and implementing
comprehensive compensation policies. These measures will better ensure the economic viability of
energy storage projects and guide the role of energy storage in the future marketization of China’s
power sector.
Acknowledgement: The authors would like to thank M. Zhou for the valuable suggestions on the paper.

2430 EE, 2024, vol.121, no.9
Funding Statement: This work is supported financially by State Grid Henan Electric Power Company
Technology Project “Research on System Cost Impact Assessment and Sharing Mechanism under the
Rapid Development of Distributed Photovoltaics” (Grant Number: 5217L0220021).
Author Contributions: The authors confirm contribution to the paper as follows: study conception and
design: Junhui Liu, Zijian Meng, Zhaoyuan Wu; data collection: Yihan Zhang, Zijian Meng; analysis
and interpretation of results: Junhui Liu, Yihan Zhang, Zijian Meng; draft manuscript preparation:
Meng Yang, Yao Lu, Zhe Chai. All authors reviewed the results and approved the final version of the
manuscript.
Availability of Data and Materials: The data that support the findings of this study are openly available
in U.S. Energy Information Administration at https://www.eia.gov/ (accessed on 1 April 2024) and
Australian Energy Market Operator at https://www.aemo.com.au/ (accessed on 1 April 2024).
Conflicts of Interest: The authors declare that they have no conf licts of interest to report regarding the
present study.
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