Power Equipment & New Energy: Capacity Pricing Mechanism Upgrade Unlocks Structural Opportunities for Independent Energy Storage

Date: February 1, 2026
Sector: Power Equipment & New Energy
Rating: Outperform (Maintained)

Executive Summary

On February 1, 2026, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued the Notice on Improving the Capacity Pricing Mechanism for Power Generation Side (Fa Gai Jia Ge [2026] No. 114). This landmark policy formally establishes a national-level capacity pricing mechanism for grid-side independent new energy storage systems. By granting these assets a recognized "system role" and providing a stable baseline revenue stream, the policy marks a pivotal transition for energy storage from participating merely in auxiliary service markets to becoming a core component of power system security.

The notice integrates coal power, gas power, pumped hydro storage, and grid-side independent new energy storage into a unified regulatory framework. Crucially, it allows local authorities to implement capacity payments for independent storage stations that serve system security and do not participate in mandatory co-located storage configurations. This move addresses the historical volatility of market-based revenues for storage assets, offering a predictable "floor" income. We maintain an Outperform rating on the sector, anticipating an acceleration in construction cycles and a structural shift in industry dynamics favoring technologically advanced, operationally efficient leaders.

Key Takeaways

1. Institutional Recognition of Storage’s "Capacity Value"

For the first time at the national level, the policy explicitly confirms the "capacity value" of grid-side independent new energy storage. Previously, independent storage projects relied heavily on fluctuating arbitrage spreads and auxiliary service fees, leading to uncertain cash flows. The new mechanism provides a stable revenue expectation, effectively issuing a "system identity card" to these assets.

The policy outlines a transitional path: while capacity prices are implemented now, the framework is designed to evolve into a "reliable capacity compensation mechanism" once electricity spot markets achieve continuous operation nationwide. This long-term visibility de-risks investment models and encourages capital allocation toward regulation-friendly power sources.

2. Market-Based Cost Allocation: "Who Benefits, Who Pays"

A significant innovation in this policy update is the embedding of storage costs into the power system’s cost transmission chain, moving away from fiscal subsidies. Local implementations already demonstrate diverse, market-oriented funding models:
* Jiangsu: Allocates peak-shaving subsidies (approx. CNY 0.5/kWh) to end-users based on electricity price承受能力 (affordability) calculations.
* Guangdong: Frequency modulation compensation costs are borne by generating units proportional to their installed capacity.
* Inner Mongolia: Funds are extracted from spot market transaction fees.

This "user-pays" or "beneficiary-pays" logic ensures that the economic value of storage is realized through market mechanisms rather than government grants, enhancing the sustainability of the business model.

3. Industry Consolidation and Higher Entry Barriers

The policy introduces strict entry thresholds that will accelerate industry differentiation, characterized by a "support the strong" tendency:
* List-Based Management: Grid-side independent storage projects must be included in a specific list formulated by provincial energy and price departments. Inclusion is no longer automatic upon construction.
* Performance-Linked Revenue: Capacity payments are tied to rigorous assessment metrics. Projects may qualify for capacity status but face revenue deductions if they fail to meet dispatch or performance standards.
* Operational Complexity: Profitability now depends on navigating complex spot market risks alongside capacity payments.

Consequently, the industry is shifting from a race for "installed capacity" to a competition for "system value." Leading enterprises with superior resource integration, technical prowess (e.g., grid-forming technology, long-duration storage), and operational capabilities are poised to capture the majority of the benefits.

4. Financial Implications and Sector Performance

The sector has demonstrated robust momentum, with the industry index showing a 48.8% absolute gain over the past 12 months, significantly outperforming the broader market (relative return of +25.5%). The stabilization of revenue streams via capacity pricing is expected to improve the bankability of storage projects, potentially lowering financing costs and boosting return on invested capital (ROIC) for top-tier players.

Source: Huajin Securities Research, based on representative sector indices.

Risks / Headwinds

While the policy framework is supportive, investors should monitor the following risks:

1. Policy Implementation Lag: Although the national directive is clear, the pace and specifics of local implementation vary. Delays in provincial lists or payment mechanisms could impact near-term cash flows.
2. Compensation Standards Below Expectations: If local governments set capacity price rates too low due to pressure on end-user electricity prices, the economic viability of some marginal projects may remain challenged.
3. Intensified Competition: As the revenue model becomes clearer, new entrants may flood the market, leading to potential overcapacity in certain regions and compression of margins in equipment supply chains.
4. Spot Market Volatility: For assets relying on the combination of capacity payments and spot market arbitrage, extreme volatility or negative pricing events in the spot market could still erode overall profitability if hedging strategies are ineffective.

Rating / Sector Outlook

Rating: Outperform (Maintained)

We maintain our positive outlook on the Power Equipment and New Energy sector, specifically highlighting the sub-sector of New Energy Storage. The issuance of Document No. 114 is a catalyst that resolves a key uncertainty regarding revenue stability. We expect the sector to enter an accelerated construction phase in 2026-2027.

The investment logic has shifted from pure volume growth to quality and operational excellence. Companies that can deliver integrated solutions—combining hardware manufacturing with sophisticated energy management systems (EMS) and trading capabilities—will command premium valuations. The policy effectively creates a moat for established players with proven track records in grid interaction and compliance.

Investment View

Strategic Focus: Quality Over Quantity

Investors should prioritize companies that benefit from the "list-based" inclusion criteria and possess the technical capability to maximize revenue from both capacity payments and ancillary services. The ideal investment target exhibits:
* Technological Leadership: Expertise in long-duration energy storage (LDES) and grid-forming inverters, which are increasingly valued for system stability.
* Project Reserves: A robust pipeline of pre-approved projects likely to make the provincial "white lists."
* Integrated Service Capability: Ability to offer EPC, operation, and trading services, particularly for state-owned enterprises (SOEs) and local platforms that are primary beneficiaries of the current policy structure.

Recommended Watchlist

Based on the analysis of technological advantage, market share, and alignment with the new capacity pricing mechanism, we highlight the following entities:

• System Integrators & Leaders:

  • Sungrow Power Supply (阳光电源): Global leader in PV inverters and storage systems, with strong grid-support technologies.
  • Hyperstrong (海博思创): Leading domestic storage system integrator with significant project backlog.
  • NARI Technology / Sifang Shares (四方股份): Strong presence in grid automation and protection, critical for meeting strict assessment criteria.

• Battery & Core Component Suppliers:

  • CATL (宁德时代) & EVE Energy (亿纬锂能): Dominant battery suppliers benefiting from increased deployment volumes.
  • Jinpan Technology (金盘科技) & Hopewind (禾望电气): Key suppliers of transformers and converters essential for grid connection.

• Grid-Side & Operational Players:

  • China Southern Power Grid Energy (南网能源): Direct beneficiary of grid-side optimization policies.
  • Guoneng Rixin (国能日新): Specializes in power prediction and trading software, crucial for maximizing spot market returns alongside capacity payments.
  • Zhiguang Electric (智光电气), New Wind (新风光), Shuangjie Electric (双杰电气): Niche players with specific strengths in SVG, PCS, or distribution network solutions.

Conclusion

The upgrade of the capacity pricing mechanism is a definitive turning point for China's energy storage industry. It transforms storage from a speculative asset class into a foundational utility infrastructure with regulated returns. While short-term volatility may persist during the local rollout phase, the medium-to-long-term trajectory points toward sustained growth for high-quality incumbents. Institutional investors should position portfolios to capture the alpha generated by this structural policy shift, focusing on companies with demonstrable operational excellence and strategic alignment with national energy security goals.