The marketization of ancillary services is the general trend, and all localities have accelerated the promotion. In recent years, driven by the increasing complexity of new energy power generation and power load, the need to improve the regulation capacity of China’s power grid has been very urgent. With the rapid increase of the scale of power auxiliary services, the original auxiliary service pricing mechanism has been difficult to achieve a balance between promoting the supply of auxiliary services and controlling costs. Therefore, market-oriented auxiliary services will become the general trend, which is also consistent with the promotion direction of national policies. Combined with the reform of power market-oriented trading, the marketization of auxiliary services paves the way for the deepening of power trading and takes the lead in marketization of power grid stability regulation. The FM market is increasing day by day, and the “thermal power + energy storage” FM market continues to break out. Under the expectation of FM market construction, the “thermal power + energy storage” in relevant regions

The demand for projects is increasing. In 2017, there were only a few “thermal power + energy storage” frequency modulation projects, and this year, the number of projects in China has increased to 30. With the official operation of the FM auxiliary service market in Guangdong and the foreseeable FM auxiliary service market in East China, the FM mode of “thermal power + energy storage” is expected to appear more in the future.

The demand for energy storage increased explosively, and the market-oriented reform of frequency modulation was accelerated everywhere

Since this year, energy storage projects such as “thermal power + energy storage” frequency modulation, grid side energy storage (Henan, Jiangsu) and new energy power generation supporting facilities (Xinjiang, Qinghai) have shown an explosive trend, which has brought great marginal changes to the demand for lithium batteries. We expect that the annual installed capacity of lithium battery energy storage in China alone is expected to exceed 1GWh, while the installed capacity of electrochemical energy storage newly put into operation in 2017 is only 390mwh, and this year’s energy storage increment comes from the three new fields mentioned above. We expect to see an explosive growth in the installed capacity of energy storage this year.

1、 The marketization of ancillary services is the general trend, and all localities have accelerated the promotion

On August 2, 2018, China Southern Energy Regulatory Bureau triggered the notice of the trading rules of Guangdong FM auxiliary service market (Trial) (hereinafter referred to as the rules). The trial operation was started and the settlement was officially started on September 1, 2018. Guangdong FM auxiliary service market started the simulation trial operation in December 2017. After nearly nine months of trial operation, it will start the formal operation and start the settlement from September this year.

The demand for the improvement of power grid regulation capacity has been very urgent. With the rapid improvement of the scale of power auxiliary services, the original auxiliary service pricing mechanism has been difficult to achieve a balance in promoting the supply of auxiliary services and controlling costs. The market-oriented power auxiliary service mechanism is a measure that can maximize the optimization of resource allocation, control the power grid and adjust the service cost, and can give full play to the role of the market in resource allocation and reasonable pricing. Therefore, market-oriented auxiliary services will become the general trend, which is also consistent with the promotion direction of national policies. Combined with the situation of power market-oriented transaction, the market-oriented reform of auxiliary services is to pave the way for the deepening of power transaction and take the lead in marketization of power grid stability regulation.

2、 The demand for FM is increasing, and the market-oriented reform forces the demand for low-cost FM

(1) The scale of FM service has been continuously improved, and market-oriented reform has been carried out to optimize resource allocation and control compensation costs

The power grid scale and load structure are becoming more and more complex, and the demand for frequency modulation is increasing. The stability of power grid frequency is not isolated, but closely related to the structure of power system. In East China and South China, the maximum load of power grid is increasing day by day, and the power grid structure is becoming more and more complex, which brings challenges to the stable operation of power grid. In North China, due to the high quality standard of Beijing Tianjin Hebei Power Grid and the improvement of new energy penetration rate in Zhangjiakou, high requirements are put forward for the frequency modulation quality of thermal power in Shanxi, Inner Mongolia and Hebei. These areas are the areas with the largest demand for FM auxiliary services in China.

Grid frequency variation is the cumulative result of grid power imbalance. Large synchronous generator is the main power supply form of power system in China, and its rotor speed is closely related to power generation frequency. The change of rotor speed is mainly due to the change of its kinetic energy. When the input energy (mechanical energy) of the rotor is inconsistent with the output energy (electromagnetic energy), it will affect its own kinetic energy, cause the change of speed, and then change the power generation frequency. Therefore, the change of power grid frequency is actually the result of the accumulation of power imbalance, which needs to be continuously corrected through “frequency modulation”.

Primary frequency modulation is the foundation, and secondary frequency modulation is the key to power balance in power system. For a single unit, the basic frequency stability can be achieved as long as its own speed is guaranteed, but the primary frequency regulation of the unit itself can not meet the needs for large power grid system. The frequency stability of large power grid requires the dispatching center to coordinate the output of all units to continuously adjust the system frequency and stabilize the power grid frequency through “secondary frequency modulation”. From the effect, “secondary frequency regulation” is realized by the dispatching center adjusting the output of the units under its jurisdiction in real time. Therefore, the essence of “secondary frequency modulation” is “automatic generation control”, which is abbreviated as AGC.

(2) Frequency modulation performance affects the compensation cost and market quotation ranking, and stimulates the demand for energy storage auxiliary frequency modulation devices

Frequency modulation performance becomes a factor affecting the compensation price. According to the rules, the compensation cost of FM mileage is calculated from FM mileage, FM settlement price and comprehensive FM performance. The main factors of comprehensive frequency modulation performance are regulation rate, response time and regulation accuracy. In addition, among units with the same quotation, priority shall be given to those with excellent performance. Therefore, the frequency modulation performance of thermal power units will become the focus of power plants. On the one hand, it directly affects the final compensation cost; On the other hand, it will also affect the quotation ranking of subjects in market participation. Therefore, lithium battery energy storage auxiliary frequency modulation system is expected to become the favor of coal-fired power plants to assist coal-fired power units to optimize the regulation performance.

According to the regulations on frequency modulation performance of squadron in the rules and the definition of market ranking price, the higher the frequency modulation performance, the better the ranking position in the market quotation, and the more compensation costs will be obtained. The standard regulation rate and response time of various power generation units are also specified in the rules. Among them, the corresponding time of AGC of thermal power unit shall be less than 1 minute, and the response time of AGC of hydropower unit shall be less than 20 seconds.

Coal power AGC unit has high cost and poor performance, hydropower AGC has low cost and limited resources, and energy storage frequency modulation is the most flexible. During the normal AGC operation of thermal power units, on the one hand, it affects its optimal generation curve and leads to its economic decline. On the other hand, due to the frequent and repeated changes of AGC command (once every 1-2 minutes on average), the control quantities of fuel, feed water and air supply of the unit also fluctuate greatly back and forth. At this time, although the controlled parameters such as main steam pressure and temperature are relatively stable, it will cause the repeated changes of thermal stress of boiler water wall and superheater pipe, which is easy to cause the scale to fall off, The possibility of boiler tube explosion is greatly increased.

Therefore, the opportunity, operation and maintenance cost and depreciation cost of AGC of thermal power units are very large. There are few hydropower control links, and the frequency modulation performance is not much different from that of thermal power units. However, hydropower is limited by resource problems, and its flexibility is also limited. The control link of lithium battery energy storage system is the simplest through power electronic devices, so its control cost is also the best.

(3) Independent energy storage power stations are expected to participate in the market, and the scope of fee payers is expanded

1. Energy storage devices and independent energy storage power stations are expected to participate in the FM auxiliary service market.

According to the regulations on FM auxiliary service providers in the rules, the third-party auxiliary service providers are allowed to cooperate with the above power generation units as FM service providers; Third party auxiliary service providers refer to devices capable of providing frequency modulation services, including energy storage devices, energy storage power stations, etc; Independent third-party auxiliary service providers regulated by power dispatching agencies at or above the provincial level are allowed to serve as frequency modulation service providers, and the relevant implementation rules shall be formulated separately.

According to the detailed rules for the implementation of grid connected operation management and auxiliary service management of electrochemical energy storage power stations in southern region (for Trial Implementation) issued by China Southern Energy Regulatory Bureau in January 2018, energy storage power stations above 2MW / 0.5 hours can be connected to the grid as an independent entity and provide auxiliary services. It is clearly stipulated that if energy storage power stations independently participate in the auxiliary service market, they shall be carried out in accordance with the market rules, The corresponding varieties will not be compensated according to the detailed rules. We believe that these two documents of the Southern Energy Regulatory Bureau have made detailed provisions on the participation of energy storage power stations in grid connection, and Guangdong Province has the institutional basis for independent energy storage power stations to participate in the frequency modulation market. 2. Six types of entities pay compensation fees, and the source of fees extends to market-oriented trading power users.

The rules stipulates six types of compensation payers: 1. Grid connected power plants directly dispatched by provincial dispatching and above (excluding pumped storage and BOT power plants);

2. 30MW and above wind farms directly regulated by local dispatching and above, 10kV and above grid connected centralized photovoltaic power stations, electrochemical energy storage power stations with capacity of 2MW / 0.5h and above, and self owned power plants; 3. The southern region transmits power to Guangdong in a “point-to-point network” manner and is connected to the power supply in the unified frequency modulation control area of China Southern Power Grid; 4. Based on the Intergovernmental framework agreement, the inter provincial market-oriented power transmission beyond the annual plan of Guangdong; 5. Power users participating in Guangdong power market transaction according to the national approved transmission and distribution price; 6. Other fee entities to be paid. In the initial stage, only the entities specified in Articles 1, 2, 3 and 4 pay according to the power generation. We believe that the allocation of auxiliary service costs from the original power supply side to the power user side is an important symbol of the power market reform, which means that the auxiliary service system matching Guangdong Province with the power spot market has been gradually formed. The auxiliary service fees for maintaining the balance of the power grid will be levied by all power grid entities, which is expected to greatly reduce the payment scale of compensation fees on the power side and further stimulate the enthusiasm for providing auxiliary services.

3、 The demand for energy storage has increased explosively, and the annual demand for energy storage lithium batteries is expected to exceed 1GWh. Since this year, energy storage projects such as “thermal power + energy storage” frequency modulation, grid side energy storage (Henan, Jiangsu) and new energy power generation supporting facilities (Xinjiang, Qinghai) have exploded

The development trend has brought great marginal changes to the demand for lithium batteries. In 2017, there were only a few “thermal power + energy storage” frequency modulation projects. This year, the number of projects in China has increased to 30, and a number of projects will be intensively started in the second half of the year. Taking Shanxi as an example, the number of projects was only 3 in 2017 and 12 this year. In terms of regional scope, the planned FM auxiliary service market includes two main regions: North China (Shanxi, Beijing Tianjin Tangshan) and Guangdong. In addition, East China will probably launch marketization in the second half of the year. At present, the “thermal power + energy storage” frequency modulation projects in Shanxi, Inner Mongolia (part of North China Power Grid), Guangdong and other provinces have been implemented one after another, and the market is expected to continue to erupt.

We estimate that this year’s demand for lithium batteries in thermal power energy storage and frequency modulation projects is about 100mwh, 300mwh in grid side energy storage projects and 200mwh in new energy supporting projects. If it is further increased in the second half of the year, we expect that there will be nearly 1GWh of pure lithium battery energy storage projects in the whole year. In 2017, the installed capacity of electrochemical energy storage newly put into operation in China was only 390mwh, and this year’s energy storage increment came from the three new fields mentioned above. Therefore, we are expected to see explosive growth in energy storage demand this year.

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