“Our 100 MW independent energy storage power station generated over 60 million yuan in frequency regulation revenue last year!” This statement from an investor at a recent energy storage industry forum sparked heated discussion.
As the installed capacity of new energy sources surpasses that of thermal power, grid frequency stability faces unprecedented challenges, and energy storage is becoming a key to solving this problem. Currently, my country’s wind power installed capacity has reached 580 million kilowatts, and photovoltaic installed capacity has reached 1.12 billion kilowatts, totaling 1.7 billion kilowatts, already exceeding that of thermal power. However, the intermittency and volatility of wind and solar power are like throwing a boulder into a calm lake, drastically increasing the difficulty of achieving frequency stability.
This also explains why independent energy storage projects have sprung up like mushrooms this year across various provinces, despite an actual implementation rate of less than 20%, market enthusiasm remains high.
Grid Frequency: Crucial to the Power System?
To understand the value of energy storage frequency regulation, we must first understand why grid frequency is so important.
my country’s grid has a rated frequency of 50Hz, with an allowable fluctuation range of only ±0.2Hz. This means the grid must precisely control its frequency between 49.8Hz and 50.2Hz.
A deviation exceeding ±0.5Hz can trigger unit protection, system disconnection, and even widespread blackouts. The root causes of grid frequency fluctuations are mainly twofold: first, second-level disturbances, such as sudden start-up and shutdown of large loads or sudden power plant failures; second, minute-level imbalances, such as rapid changes in wind and solar power output and fluctuations in electricity consumption.
This is analogous to the human heartbeat, which can accelerate instantaneously due to sudden fright or steadily increase with continuous activity. Faced with these challenges, the grid has established two lines of defense: primary frequency regulation provides a second-level automatic “emergency response,” while secondary frequency regulation undertakes minute-level fine-tuning “manual correction.”
These two lines of defense together form a protective umbrella for grid frequency stability.
The power grid frequency is like the heartbeat of the power system; its stability is paramount.
Primary frequency regulation: a conditioned reflex?
Primary frequency regulation is an instinctive reaction of power plant units or energy storage systems, analogous to a conditioned reflex in the human body.
When the frequency drops, the system automatically “increases” power generation; when the frequency rises, it “decreases” power generation, the entire process requiring no human intervention.
Currently, the main entities participating in primary frequency regulation include thermal power, hydropower, gas turbine units, and energy storage power stations. The response time of primary frequency regulation is extremely critical. Traditional thermal power units require 3-5 seconds, while energy storage systems can achieve millisecond-level speeds. This speed advantage gives energy storage a head start in the frequency regulation market.
Regarding the regulation cycle, the duration of a single primary frequency regulation is typically within tens of seconds, with the ratio of frequency change to power change set by the “descent coefficient.” Energy storage has significant advantages in primary frequency regulation: fast response speed, high regulation accuracy, and no fuel limitations.
For example, when the grid frequency suddenly drops, an energy storage system can complete the output change within 100 milliseconds, while a thermal power unit may only just begin to respond at this time. This difference in speed can mean a world of difference between preventing system crashes and triggering widespread power outages in critical moments. It’s worth noting that primary frequency modulation (FM) is a type of “differential regulation,” which can quickly suppress frequency drops but often cannot precisely restore the frequency to 50Hz.
This is like temporarily plugging a breach in a dam with sandbags; it can prevent a flood from spreading instantly, but more precise repairs are needed to completely solve the problem.
Secondary Frequency Regulation: Precision Surgery?
If primary frequency regulation is like “stopping the bleeding,” then secondary frequency regulation is like “precision surgery,” truly restoring the system frequency to 50Hz.
Secondary frequency regulation, also known as AGC (Automatic Generation Control), is the process of restoring the system frequency to its rated value by adjusting the active power output of generator sets, building upon primary frequency regulation. The response time for secondary frequency regulation is typically between 30 seconds and 15 minutes, initiated by the power dispatching department based on system frequency changes, issuing commands to the generator sets.
Its operational logic can be summarized as “over-refund, under-compensation”: the dispatching unit calculates the frequency deviation in real time and assigns the adjustment task to multiple frequency regulation substations. These substations must bring the frequency back to the precise range of 50Hz ± 0.05Hz within a specified time. Energy storage systems also perform exceptionally well in secondary frequency regulation; their second-level ramp-up speed makes them the ideal power source for secondary frequency regulation.
Traditional generator sets have a single regulation direction, while energy storage systems can achieve “bidirectional regulation of charging and discharging”. They can cope with the increase in load and handle the sudden increase in new energy power generation. The regulation range covers ±100% of the rated power, perfectly adapting to various power fluctuation scenarios.
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How does energy storage frequency regulation generate revenue? Basic salary + performance bonus + position allowance
Having understood the working principles of primary and secondary frequency regulation, let’s look at how the revenue from energy storage participating in frequency regulation is calculated.
The total revenue from energy storage frequency regulation consists of three parts: frequency regulation mileage compensation, frequency regulation performance compensation, and capacity compensation.
These three parts are analogous to a basic salary, performance bonus, and position allowance in a workplace. Frequency regulation mileage compensation is the foundation of revenue calculation, based on the total energy actually charged and discharged when the energy storage system responds to the grid’s frequency regulation command.
The formula is: Frequency regulation mileage compensation = Σ(Single frequency regulation call power × Single call duration × Mileage unit price). This is similar to a ride-hailing driver’s income, mainly depending on the number of rides completed, the distance traveled per ride, and the unit price per kilometer.
Frequency regulation performance compensation is the key to high energy storage revenue, rewarding performance indicators such as system response speed and regulation accuracy. The calculation formula is: Frequency regulation performance compensation = Frequency regulation mileage compensation × Performance coefficient (K value). The K-value typically ranges from 1.2 to 2.0, but can reach as high as 6 times in some provinces. This means that high-performance energy storage power stations can potentially achieve several times the return.
Capacity compensation is a stable source of revenue that ensures the availability of energy storage. The calculation formula is: Capacity Compensation = Energy Storage Capacity × Capacity Compensation Standard × Activation Rate. This revenue is independent of the actual number of frequency regulation operations; it is obtained as long as the power station remains available, providing investors with basic revenue protection.
Significant differences exist in frequency regulation market policies across provinces in China, directly impacting the return on investment for energy storage projects.
Taking a 100MW/200MWh energy storage power station as an example, we analyze the revenue situation in different provinces: Gansu Province was the first province in China to achieve market clearing for both frequency regulation and spot markets, allowing energy storage to earn both frequency regulation service fees and spot price differences.
The mileage price for frequency regulation is approximately RMB 0.027-0.03/kWh, with a capacity compensation of RMB 330/kW·year. Benefiting from no capacity cap and market flexibility, Gansu energy storage power stations can achieve annual revenue of RMB 65-70 million, ranking among the top in the country. Shanxi Province, as a pioneer in the primary frequency regulation market, offers a capacity compensation of RMB 0.35/kWh and a mileage compensation of RMB 0.15/kWh for primary frequency regulation; secondary frequency regulation is compensated at RMB 0.12/kWh based on mileage. This province has higher technical requirements, making hybrid energy storage projects using supercapacitors and lithium batteries more popular, with annual revenue of approximately RMB 55-60 million.
Inner Mongolia adopts a high-threshold, high-return model, only implementing secondary frequency regulation with no capacity compensation, but offering the highest mileage compensation in the country at 0.41 yuan/kWh. This is contingent on meeting stringent requirements such as a K-value ≥ 1.5 and a response time ≤ 1 second, making it suitable for top-performing electrochemical energy storage, with annual returns of approximately 52-58 million yuan.
Hebei Province offers the most stable returns, with a frequency regulation mileage price of approximately 0.028 yuan/kWh and a capacity price of 100 yuan/kW·year. It also allows participation in inter-provincial frequency regulation, yielding 10%-20% higher returns than within the province, with annual returns around 50 million yuan, suitable for investors with lower risk tolerance.
Shandong Province and Ningxia Hui Autonomous Region are in the early stages of the market, with relatively lower returns. Shandong only offers mileage compensation of 0.015-0.0225 yuan/kWh, with thermal power still dominating; Ningxia mainly relies on capacity compensation, which will be 100 yuan/kW·year in 2025 and will increase to 165 yuan/kW·year in 2026. The annual revenue of both provinces is less than 35 million yuan.
The proportion of renewable energy in energy storage frequency regulation will continue to increase in the future, and the demand for frequency regulation resources by the power grid will only increase, not decrease.
The energy storage frequency regulation market is transitioning from policy-driven to market-based competition, a shift that brings both opportunities and challenges. The construction of new power systems provides ample space for energy storage frequency regulation.
Taking Jiangsu as an example, the plan is to build 20 pilot parks for new power system applications by 2030, with a new energy storage and pumped storage capacity of approximately 13 million kilowatts. This policy guidance creates sustained market demand for energy storage frequency regulation. Technological advancements are reducing energy storage costs and improving performance. The cost of electrochemical energy storage has decreased by more than 80% over the past decade, while cycle life and energy density have significantly improved. At the same time, new technologies such as flywheel energy storage and compressed air energy storage provide more options for different application scenarios. Market competition places higher demands on energy storage operation. As more players enter the frequency regulation market, simple capacity compensation models will gradually be phased out, and the proportion of performance compensation will continue to increase. This means that energy storage power stations must continuously improve their response speed and control precision to stand out in market competition. Currently, the implementation rate of independent energy storage projects is less than 20%, reflecting the multiple challenges the industry still faces in terms of technology, policy, and business models. However, as one industry expert stated, “The areas where problems exist are often where value is created.”
With the continuous improvement of market mechanisms and technological advancements, energy storage frequency regulation is expected to become an indispensable core component of new power systems. In the wave of energy transition, energy storage is no longer an option, but a core support for building new power systems. With its unparalleled speed and flexibility, it transforms into a “guardian of the grid’s stable heartbeat,” ensuring that we can enjoy clean energy without worrying about the risk of power outages.