More Storage Cycles Demand a Robust Power Spot Market
There are multiple reasons behind the low utilization rate of lithium battery energy storage stations in China:
Poor quality of supporting storage systems: Investors often build storage facilities merely to meet regulatory requirements for wind and solar grid connection quotas. In pursuit of ultra-low costs, some procure substandard or even second-hand batteries, while fire protection systems are minimized or omitted altogether. As a result, both grid operators and plant operators are reluctant to dispatch these storage systems due to safety concerns.
Small-scale energy storage units: The capacity of storage systems paired with renewable energy projects is often too small, which poses operational risks for power grid dispatching. This discourages both operators and the grid from making full use of these systems.
Lack of viable business models: Many energy storage stations generate no income from charging and discharging. Some are restricted to serving a single wind or solar plant and cannot operate independently or connect directly to the grid, making it difficult for them to participate in grid dispatching.
With the promotion of the energy storage capacity leasing model, more and more wind and solar power plants are choosing not to build their own storage systems. Instead, they meet grid-connection requirements by leasing capacity. As the number of independent energy storage stations at the 100+ MW scale continues to grow, and as energy storage begins to be used in practice—becoming independent market entities responsible for their own profits and losses—the issues of poor equipment quality and small scale are greatly improved. However, the business model remains a major challenge.
Energy storage stations only participate in charge-discharge cycles when the discharge revenue exceeds the charging cost. At that point, a trader will submit a charge-discharge curve to the trading platform, which is then passed down by the centralized control team to the storage station for execution, completing a full cycle. The prerequisite for this entire process is the existence of a power spot market that reflects peak and off-peak electricity price differences. It can be said that the ‘power spot market’ has become a key bottleneck currently limiting the development of energy storage.
Battery Calendar Life: Another Bottleneck
Battery lifespan is evaluated using two key parameters: calendar life and cycle life. The end of either parameter effectively marks the end of the battery’s useful life.
“Calendar life” refers to the length of time a battery can maintain its designed performance from the moment it is manufactured, even if it is unused or rarely used. Calendar life reflects the gradual aging of the battery’s chemical components and structure over time.
“Cycle life,” on the other hand, refers to the number of charge-discharge cycles a battery can undergo under normal usage conditions before its performance declines to a specified level—typically a certain percentage of its rated capacity, such as 80%.
Currently, LiFePO₄ lithium iron phosphate batteries for energy storage are typically designed with a cycle life of over 8,000 cycles and a calendar life of up to 10 years. For power-oriented energy storage applications (e.g., frequency regulation in thermal power plants), cycle life is often the limiting factor. In contrast, for energy-oriented storage, which is mainly used for daily peak shaving, the actual number of charge-discharge cycles over its lifetime is far below the design specification (assuming an average of one full cycle per day), so calendar life is usually the limiting factor.
However, many battery manufacturers focus on promoting “cycle life” as a key selling point for new products, while rarely mentioning “calendar life.” For energy-oriented storage systems, calendar life should be of greater concern.
According to data from the China Electric Power Research Institute, the actual average operational lifespan of power-type energy storage in China is less than 3 years, while the expected lifespan is 10 years. For energy-type storage, the actual average lifespan is less than 8 years, compared to an expected 15 years. The ratio of actual system-level cycle life to laboratory-tested single-cell cycle life is less than 0.5 on average, while the expectation is above 0.85. Insufficient calendar life of batteries has become another key bottleneck in the development of energy storage.
Bottleneck 1 in Energy Storage Development: The Power Spot Market
Energy Storage Flexibility Value Relies on the Power Spot Market
In our earlier analysis on multi-dimensional power value, we noted that energy storage, unlike traditional power sources, does not generate electricity—it must be charged first, meaning its net energy value is negative. However, systems such as LiFePO₄ battery units can shift surplus midday solar power to evening peak periods, where electricity prices are higher. This gives storage systems, including lithium-ion batteries, significant flexibility value.
In peak demand situations, storage provides fast-response discharge capacity, contributing reliability as well. This reliability value is best recognized through capacity markets or compensation mechanisms, while flexibility value depends on energy spot markets and ancillary services.
As solar lithium battery packs are increasingly paired with PV systems, energy storage will play a major role in peak shaving—more than frequency regulation or ramping support. The demand for peak shaving far exceeds that for frequency regulation, and the ancillary services market is relatively limited in size.
To unlock the full potential of storage technologies like LiFePO₄ lithium iron batteries, and to drive higher utilization rates, the development of a robust energy market—especially one with true peak-valley price differences—is essential.
Bottleneck 2 in Energy Storage Development: Battery Calendar Life
Energy Storage Stations Primarily Use LiFePO₄ Batteries, but Economics Are Limited by Calendar Life
Based on the type of cathode material used, mainstream lithium batteries can be classified into two major types: LiFePO₄ batteries (LFP) and Nickel Cobalt Manganese batteries (NCM). LiFePO₄ batteries offer significant advantages in terms of safety, cycle life, and cost-effectiveness. Although their energy density is lower compared to NCM batteries, this drawback is not critical for large-scale energy storage stations, making LiFePO₄ the preferred choice for such applications.
According to data from BloombergNEF (BNEF), the share of LFP batteries in global energy storage systems rose from 33% in 2020 to 84% in 2023, and is expected to remain above 90% over the next five years.
In terms of applications:
LiFePO₄ batteries are widely used in commercial and industrial (C&I) energy storage systems, with common configurations including 204V 256V 512V 100Ah 280Ah 300Ah high voltage solar lithium ion battery system as well as in residential energy storage systems 48V 51.2V 100Ah 200Ah 280Ah or integrated 15kWh 30kWh lifepo4 battery packs.
NCM batteries, on the other hand, are mainly used in electric mobility due to their higher energy density. Typical applications include electric motorcycles (48v 60v 72v 50ah 70ah lithium ion batteries), electric scooters (36v 48v 6ah 10ah 15ah lithium batteries), and golf carts (48v 60v 72v 100ah 200ah 300ah lifepo4 battery packs ).
In engineering applications, the service life and aging status of LiFePO₄ battery systems are typically evaluated using two key indicators: Cycle Life and Calendar Life.
Cycle life refers to the number of charge-discharge cycles a LiFePO₄ battery can undergo under standard conditions—such as specified temperature and charge/discharge rates—either through conventional cycling or under specific depth-of-discharge conditions, until it reaches the defined end-of-life criteria.
Calendar life, on the other hand, represents the time span a battery can maintain its performance when stored at a specified temperature in an open-circuit (non-operating) state. It reflects the aging behavior of the battery when kept in standby mode.
For energy-type energy storage systems, calendar life is more critical than cycle life. When LiFePO₄ batteries are used in storage applications, their depth and frequency of charge-discharge cycles are often uncertain and largely dependent on grid demand. In most real-world scenarios, the actual number of cycles performed by lithium iron phosphate battery systems is significantly lower than the designed capacity.
However, since energy storage systems must remain in standby mode for extended periods, calendar aging continues to occur regardless of usage. This ongoing degradation, even without frequent cycling, makes battery calendar life a key constraint on the economic viability of LiFePO₄-based storage systems.
In essence, while LiFePO₄ lithium battery packs are known for their long cycle life and safety, their economic performance in energy storage applications is increasingly limited by calendar aging. As such, calendar life has become another major bottleneck in the development of cost-effective solar lithium battery energy storage solutions.
