A battery built for a permit is not yet an asset

Between 2021 and 2024 a large share of the battery storage built in China was built to satisfy a condition. Many provinces asked new wind and solar projects to pair themselves with storage, usually a stated share of their capacity for a stated number of hours, before they could be approved or connected. Developers met the condition by building batteries beside their own farms or by leasing capacity from independent stations like ours. Either way, the battery existed because a permit required it.

Early in 2025 the central government's pricing reform for new wind and solar moved their output towards market prices and said plainly that storage should no longer be a precondition for approval or grid connection. I welcomed the reform, and I still do. It also removed the reason for which a good part of the country's storage fleet had been built, and it exposed something many of us in the industry had preferred not to say aloud: a station built to satisfy a permit had never been tested as an asset.

What the pairing rule really paid for

At Qianyue, capacity leasing made up 56 per cent of our station revenue in 2024. A renewable developer paid us an annual fee per kilowatt so that our station could count towards its pairing obligation. The fee was negotiated, not discovered. It reflected what the developer would otherwise have spent building its own battery, not what our battery did for the grid. Some of the batteries that developers built for themselves rarely discharged at all. The obligation was met on paper, and its cost was carried into the price of electricity.

I do not say this to criticise the provinces that introduced pairing. They faced real curtailment and needed flexibility quickly, and the rule put batteries on the grid at a speed no market signal would have produced. But a rule that pays for presence rather than performance trains owners to optimise presence. Stations were sized to the obligation, sited where land and connection were cheapest, and specified with the cheapest cells that passed the tender. Their owners rarely needed to know, hour by hour, what the grid wanted from them.

When leases began to lapse in 2025, the difference between a permit and an asset became a number. Developers connected after the reform had no reason to lease, and those with older obligations bargained hard at renewal. Our sales team proposed halving the lease fee to keep customers. I declined, because a discounted lease is still a payment for presence, and it would only have postponed the question of what our stations were actually worth.

Price the hour the grid needs

A battery's value lies in moving energy from an hour when the grid has too much to an hour when it has too little, and in standing ready for the minutes when frequency or voltage needs support. In a province with a working spot market, those hours have prices. In Shandong the gap between the midday price, when solar floods the system, and the evening peak is wide on most days and very wide on some. A station that charges and discharges well against that spread, and is available when the system operator calls on it, earns its keep. A station that cannot forecast the spread, or that loses capacity faster than its warranty assumed, does not.

Since 2025 we have rebuilt our station business around that view. We set up a trading and forecasting desk of 24 people who bid our stations into the provincial spot market every day, using our own forecasts of solar output, load and congestion. We measure every station on what it earns per kilowatt of capacity per year, net of degradation and auxiliary consumption, and on its availability when called. Trading revenue and capacity compensation rose from 44 per cent of station revenue in 2024 to 71 per cent in the first half of 2026.

The measurement was uncomfortable. Two of our older two-hour stations in Inner Mongolia, sited where connection was cheap rather than where congestion was worst, earned far less in the market than their leases had paid. We impaired them by RMB 214 million in 2025. Our newer Shandong stations, sited close to load and built with better thermal management, earned more than we had assumed. Had we judged our fleet by installed gigawatt-hours, as the industry still often does, we would have counted those stations as equals.

There are limits to the argument. Spot prices in a young market move with rule changes, and a station's earnings can fall because a province alters how storage is settled or compensated. Not every province has a spot market as developed as Shandong's. Some capacity payment is justified, because a grid needs batteries held ready for rare events that a daily spread will never price. My point is narrower: storage should be paid for what it does or stands ready to do, and owners should be able to show which of the two they are being paid for.

Five questions for a board that owns storage

Many state-owned and private boards in China now own storage, often because a generating subsidiary built it to meet an obligation. Directors do not need to become traders to judge it. They can ask five questions.

First, what share of each station's revenue comes from market trading, what share from capacity or compensation payments, and what share from contracts that exist only because of an old obligation? Second, what does each station earn per kilowatt of capacity per year, after degradation and auxiliary power, compared with what its investment case assumed? Third, how often was the station available when the system operator called on it, and what did each unavailable hour cost? Fourth, how fast is usable capacity declining against the warranty curve, and who pays if it declines faster? Fifth, which stations would the company build again today, at today's prices, in the same place?

The last question is the hardest and the most useful. In our case the honest answer was about two-thirds of the fleet. The other third is not worthless. It needs a different plan, whether a longer duration, a different market role or, in time, sale to an owner who can operate it better.

The pairing years gave China a large storage fleet very quickly, and the power system is better for it. They also left an industry that learnt to build batteries before it learnt to run them. The reform has begun to correct that. Owners who measure their stations by what the grid pays for will discover which of their batteries are assets. Owners who keep counting gigawatt-hours will discover it later, and at a worse price.