“Profits Plunge by 40%, Payback Period Nearly Doubles”—a newly released industry report inadvertently poured cold water on the booming distributed energy storage industry.
The chain reaction of a collective “shrinkage” in peak-valley price differences across 25 provinces nationwide is becoming apparent, significantly squeezing the arbitrage space, a core source of revenue.
In Zhejiang, for example, the average electricity price difference plummeted from 0.83 yuan/kWh to 0.52 yuan/kWh, directly leading to a 40% drop in profits for local distributed energy storage projects and extending the investment payback period from 5.4 years to 9.1 years.
Distributed energy storage, once touted as a high-yield sector, is now facing a dangerous "yellow light."
Warning: Peak-Valley Price Difference Profits Plunge by 40%
The root cause of such large fluctuations in the profitability of distributed energy storage lies in the adjustment of time-of-use pricing policies. In fact, this change was foreshadowed – on December 16th, the Natural Resources Defense Council and the Zhongguancun Energy Storage Industry Technology Alliance jointly released the “Research Report on Business Models for Distributed Energy Storage Development” (hereinafter referred to as the “Report”). While acknowledging the significant achievements of the energy storage industry in recent years, the Report also objectively presented, using concrete data, the issue of the industry’s weakening profitability foundation. The issue of the industry’s profit foundation being weakened has come to the forefront.
A quick glance at the policy calendar reveals that the National Development and Reform Commission’s “Notice on Further Improving the Time-of-Use Electricity Pricing Mechanism,” issued in July 2021, essentially gave distributed energy storage a boost.
The policy clearly stated that if a region’s annual peak-valley difference rate exceeds 40%, the peak-valley price difference must be at least 4:1; for regions with lower rates, it must be at least 3:1. With this policy as a safety net, the peak-valley price difference widened significantly in coastal provinces with high electricity demand, such as Zhejiang and Guangdong. According to data released by the National Energy Administration in December 2025, before the adjustment, the weighted average price difference for industrial and commercial energy storage in Zhejiang was 0.83 yuan/kWh, while in Guangdong it was approximately 0.72 yuan/kWh.
For those in the industry, this meant that by adopting a “two-charge, two-discharge” operating strategy, a lithium battery energy storage project with a 2-hour battery life could recoup its investment in just over 5 to 6.5 years. This economic advantage attracted considerable capital investment.
However, since 2025, the tide has turned completely. The updated time-of-use (TOU) electricity pricing rules implemented by various provinces have directly disrupted the previous profit structure.
Taking Zhejiang as an example, its policy adjustments are most representative—the draft for public comment on the new TOU electricity pricing policy released in October 2025 clearly states that the floating ratio of TOU electricity prices for industrial and commercial users will be adjusted to “peak: peak: flat: low: deep valley = 2.05: 1.85: 1: 0.4: 0.2,” while extending the midday low valley period by one hour. This directly forces the “two charging and two discharging” model of energy storage to change to a “one flat valley and one peak valley” model.
Based on the State Grid Zhejiang’s September 2025 industrial electricity price, the weighted average price difference for energy storage projects dropped to 0.5961 yuan/kWh after the adjustment, a decrease of 28.5%, directly reducing the yield of industrial and commercial energy storage by 30%. A manager of an energy storage integrator in Zhejiang stated, “This means we must recalculate the economics of our projects, and some planned small-scale projects may be postponed.”
In response, the report, citing the latest statistics from the China Energy Storage Alliance (CNESA) DataLink database in November 2025, points out that the situation in Zhejiang is not an isolated case.
Looking at the agency electricity purchase prices announced by local power grids in November 2025, compared with the same period in 2024, the maximum peak-valley price difference has narrowed to varying degrees in 25 of the 31 provinces nationwide. The reduction in price differences is most significant in traditional energy storage active regions such as the Yangtze River Delta and the Pearl River Delta. Many projects planned in 2024, if recalculated based on the current price differences, have profit models that are on the verge of becoming invalid.
For the industry, the most direct impact is a significant drop in profit expectations.
Rapid expansion is flashing a "yellow light," and inefficient production capacity may be eliminated.
While profit expectations continue to decline, the rapid, even disorderly, expansion of the distributed energy storage industry is accelerating the exposure of investment risks, with some inefficient capacity already facing elimination.
From 2019 to the first three quarters of 2025, the cumulative installed capacity of distributed energy storage in China increased from 570MW to 3638MW, a 5.38-fold increase. The newly installed capacity in 2024 alone accounted for 42% of the total increase over the past five years. This rapid growth is mainly due to the intensified competition in centralized energy storage, leading many companies to shift their focus to distributed energy storage.
Amidst this expansion boom, the market exhibits a clear structural imbalance.
As of September 2025, the installed capacity of distributed energy storage in Jiangsu, Guangdong, and Zhejiang provinces reached 642MW, 630MW, and 572MW respectively, accounting for 51% of the national total. Most of these projects relied on the original peak-valley price difference model for planning and construction.
However, after policy adjustments, projects in these regions are the first to be impacted. Taking Zhejiang as an example, after the electricity price difference narrowed, projects that were originally economical instantly fell into a profit dilemma, and some projects that had already started construction faced the embarrassing situation of “losses as soon as they were put into operation”.
October's industry data already revealed the pain of adjustment.
According to CNESA statistics, in Zhejiang, Guangdong, and Jiangsu—traditionally strong provinces for energy storage—the number of newly registered projects in October decreased by 41% year-on-year. Zhejiang saw a 64% drop in the number of projects and a 26% year-on-year decrease in energy capacity; Guangdong also experienced a 52% year-on-year decrease in energy capacity.
This decline in registration data reflects both a rational response from companies to their profit expectations and the release of risks stemming from previous blind expansion.
More alarming is that some companies, in their rush to seize market share, neglected technological adaptability and scenario matching in their project planning, leading to the accumulation of inefficient capacity. Furthermore, currently, apart from peak-valley price arbitrage, alternative revenue models such as virtual power plants and demand-side response are still immature. This means that projects relying solely on price difference revenue and lacking technological and scenario support have no room to survive after policy adjustments, and the industry is entering a critical phase of clearing out inefficient capacity.
Of course, the market is not entirely cooling down; regional structural differentiation is emerging. October data shows that emerging markets such as Henan, Anhui, and Sichuan performed exceptionally well, accounting for one-third of the national total of newly registered projects. Henan led the country with over 40% of the new installations. These regions, whether due to local policy support or the continued advantage of peak-valley price differences, have become new engines driving industry growth and have also pointed the way for differentiated development in the industry.
Overseas Energy Storage Issues Simultaneous Warnings, Global Market Faces Challenges
While the domestic distributed energy storage industry is encountering revenue bottlenecks, overseas markets are also issuing simultaneous warning signals.
A recent research report released by the Solar Energy Industries Association (SEIA) shows that, affected by federal policy adjustments, 165 independently deployed energy storage projects in Texas, a major energy storage hub in the United States, are facing significant development risks, and the global energy storage market may be entering a period of adjustment.
SEIA’s warning points to multiple policy blows: a slowdown in federal permitting processes, the elimination of key investment tax credits, and the termination of the $7 billion “Solar for All” subsidy program.
These policy changes have a fatal impact on energy storage projects that rely on policy incentives. Data shows that of the 26GW of clean energy capacity planned for development in Texas, more than 22.5GW is at risk of being shelved; in 2026 alone, more than 13GW of solar power plants and their associated battery energy storage systems in the state may not be able to connect to the grid on time, accounting for half of the planned clean energy projects during the same period.
This risk is not limited to the project development level but will also spread to the economic and energy security sectors. SEIA estimates that if energy storage and solar power projects continue to face obstacles, Texas residents’ electricity bills will cumulatively increase by approximately $115 billion over the next 15 years. Simultaneously, half of the electricity planned for grid connection by the end of 2030 will face shortage risks, directly impacting grid resilience and making it difficult to meet the electricity demands of emerging sectors such as data centers.
The simultaneous pressure on domestic and international markets not only reveals the energy storage industry’s high sensitivity to policy but also sounds the alarm about overcapacity and blind expansion—the energy storage industry is highly likely to repeat the mistakes of the photovoltaic industry in its early years.
Back then, the photovoltaic industry rushed in under the stimulus of policy dividends, leading to severe overcapacity, companies getting mired in price wars, and a large number of small and medium-sized enterprises going bankrupt and exiting the market. The entire industry underwent a long period of painful restructuring. The current situation of the energy storage industry is strikingly similar: as soon as the policy direction shifts, projects that relied on high price differences and were blindly planned in the early stages are now facing profitability difficulties, and inefficient capacity in some regions is already beginning to emerge.