National Capacity Tariff for Energy Storage: A Structural Shift in Profitability Models

Date: February 2, 2026
Sector: Power Equipment / Energy Storage
Rating: Overweight (Maintained)
Analysts: Zeng Duohong, Ruan Qiaoyan (Soochow Securities)

Executive Summary

The Chinese government has officially introduced a national-level capacity tariff mechanism for grid-independent new energy storage systems. This policy marks a pivotal transition in the industry, fundamentally reconstructing the profitability model for independent storage assets by providing a stable revenue stream akin to traditional thermal power generation. By anchoring compensation to local coal-fired power capacity tariffs and integrating costs into system operation fees borne by end-users, the policy de-risks investment returns and accelerates project commissioning.

We anticipate a surge in demand as provincial authorities roll out specific implementation guidelines. Coupled with the stabilization of lithium carbonate prices (RMB 120k–150k/ton), we project new energy storage grid connections to reach 183 GWh in 2025, followed by a robust 50% year-on-year growth to 275 GWh in 2026. This dual driver of policy support and cost normalization creates a compelling entry point for high-quality industry leaders. We maintain an Overweight rating on the sector, strongly recommending CATL and Sungrow, while highlighting opportunities in EVE Energy and Hyperstrong.

Key Takeaways

1. Policy Breakthrough: National Capacity Tariff Mechanism

For the first time, the state has clarified the capacity price mechanism for independent new energy storage, underscoring its strategic importance in grid stability.

• Pricing Formula: The capacity tariff is benchmarked against local coal-fired power capacity standards (RMB 165–330/kW/year). The final rate is adjusted based on "peak-shaving capability," calculated as the ratio of full-power continuous discharge duration to the annual longest net load peak duration (capped at 1). Additional factors include power market maturity and systemic needs.
• Administrative Acceleration: A "list-based management" system will be implemented by provincial energy and price departments. This structured approach is expected to clear administrative bottlenecks, accelerating the construction of previously paused projects and standardizing approval, assessment, and build cycles.
• Cost Allocation & Market Integration:
  • Funding Source: Capacity compensation fees are integrated into local system operation costs, ultimately passed through to terminal users.
  • Trading Mechanism: In regions with spot markets, charging and discharging follow real-time spot prices. In non-spot markets, charging follows industrial/commercial electricity rates, while discharge prices are set provincially.
  • Transmission Fees: Transmission and distribution fees are levied during charging but refunded upon discharge, ensuring neutrality.
  • Future Outlook: The mechanism aims to align with a broader "Reliable Capacity Compensation" framework, placing storage on equal footing with coal and gas power for fair competition.

2. Economic Viability: IRR Restoration and Demand Surge

The new tariff structure significantly improves project economics, making storage assets attractive to institutional capital.

• Case Study (Gansu Province): Using Gansu’s standard as a reference:
  • Base Rate: RMB 330/kW.
  • Adjustments: Adjusted for auxiliary power consumption (1.74%), storage duration (4h vs. 6h baseline), and a supply-demand coefficient (89.5% for 2025).
  • Effective Subsidy: Approximately RMB 193/kW for 4-hour storage systems.
  • Profitability: Assuming cell costs of RMB 0.35/Wh (linked to lithium carbonate at RMB 120k/ton) and an arbitrage spread of RMB 0.26/Wh, the projected Internal Rate of Return (IRR) reaches 8–9%. This meets the yield requirements of most financial investors.
• Volume Forecast: With multiple provinces expected to issue subsidiary policies, we forecast:
  • 2025: 183 GWh of new grid-connected capacity.
  • 2026: 275 GWh, representing a 50% YoY growth.

3. Cost Side: Lithium Price Stabilization

The correction in lithium carbonate prices has bottomed out. If prices stabilize within the RMB 120,000–150,000/ton range, the cost pressure on battery manufacturers will ease, triggering the restart of domestic projects that were previously deferred due to margin compression.

Risks / Headwinds

While the outlook is positive, investors should monitor the following risks:

Rating / Sector Outlook

Sector Rating: Overweight (Maintained)

The introduction of the national capacity tariff resolves the long-standing uncertainty regarding the monetization of storage flexibility. By transforming storage from a purely arbitrage-dependent asset to one with a guaranteed capacity revenue component, the sector’s risk profile has improved materially.

Investment Thesis:
1. Policy-Driven Re-rating: The clarity on revenue streams justifies higher valuation multiples for integrated players.
2. Volume Growth Visibility: The 50% growth trajectory for 2026 provides strong earnings visibility.
3. Margin Recovery: Stabilized input costs combined with optimized pricing mechanisms support margin expansion for leading manufacturers.

Investment View

We recommend a barbell strategy focusing on industry leaders with strong balance sheets and technological moats, alongside high-growth mid-stream material suppliers.

1. Core Holdings (Strong Buy)

Current valuations have already priced in previous pessimistic expectations, offering a attractive risk-reward ratio at the bottom of the cycle.

• CATL (300750.SZ): As the global battery leader, CATL benefits from scale, technology leadership, and diversified revenue streams. The recovery in domestic storage demand directly boosts its large-scale storage battery shipments.
• Sungrow (300274.SZ): A dominant player in PCS (Power Conversion Systems) and integrated storage solutions. Sungrow is well-positioned to capture the surge in independent storage projects due to its strong grid integration capabilities and global brand presence.

2. High-Growth & Specialized Plays

• EVE Energy (300014.SZ): Strong competitiveness in large-format cylindrical and prismatic cells for storage. Expected to gain market share as project tenders increase.
• Hyperstrong (Haibo Sichuang): A pure-play independent storage system integrator with deep expertise in grid-side projects. Direct beneficiary of the "independent storage" policy focus.

3. Watch List & Broader Exposure

• Integrated Giants: Canadian Solar (Artesian), CALB (Zhongchuang Xinhang), and BYD offer diversified exposure to both domestic and international markets.
• Niche Players: Penghui Energy for specialized cell applications.

4. Midstream Materials

The volume growth in storage will pull through demand for upstream materials. We recommend positions in:
* Separators & Electrolytes: Critical for safety and performance in large-scale installations.
* Anode/Cathode Materials: Benefiting from volume-driven economies of scale.
* Foils (Aluminum/Copper): Essential components with tight supply-demand dynamics in certain grades.

Conclusion

The national capacity tariff is not merely a subsidy; it is a structural reform that validates the economic model of independent energy storage. With the dual tailwinds of policy clarity and stabilized raw material costs, the sector is poised for a multi-year growth cycle. Institutional investors should prioritize high-quality leaders like CATL and Sungrow to capture the alpha generated by this inflection point.