China energy storage industry: UBS expects China BESS demand to recover in 2027 as policy and project economics improve

Overview

This expert-call takeaway examines China’s battery energy storage project pipeline and economics. UBS attributes the current gap between tenders and installations to grid-connection delays, cancellations caused by rising costs and policy uncertainty, but expects policy improvements and a maturing project pipeline to support a recovery beginning in 4Q26 and extending through 2027.

Core views

UBS describes a sharp divergence between project tendering and physical installation in China’s BESS market. In 8M26, tenders totaled 413GWh, up 52% year on year, whereas installation was only 77GWh, up 2%. The expert attributed this mismatch chiefly to delayed grid interconnection, project cancellations as costs rose, and uncertain policy arrangements. UBS therefore remains cautious on 2026 demand even though the tender pipeline is substantial. The report’s central recovery case rests on improving visibility of project returns. Potential policy changes include lower system operating charges, refinements to capacity-pricing implementation and stronger ancillary-service compensation. Provinces that have already introduced capacity pricing may refine their schemes, while other provinces—particularly those with high renewable penetration, mature spot markets and sizable independent storage installations—may adopt it over time. UBS notes that longer-duration storage projects could benefit more from these changes. Ancillary-service revenue is another potential source of improved economics. Further development of frequency-regulation markets could add revenue, although secondary frequency-regulation income is highly dependent on clearing prices and actual dispatched regulation mileage. Provincial secondary frequency-regulation price floors range from Rmb0–1/MW and caps reach Rmb15/MW. At current capacity pricing and a lithium price of Rmb150k/t, the expert estimates project IRRs above 15% in Guangdong, Inner Mongolia and Shanxi, versus 8–9% in Gansu and Ningxia, with lower returns in other provinces. Rising system operating charges are highlighted as a major drag on returns: the average charge reached Rmb0.068/kWh in 9M26, up 93% year on year, and was higher in some provinces. UBS sees a possible reduction intended to avoid double charging as a key catalyst, potentially implemented as early as end-2026. For a typical 200MW/400MWh project in Shanxi, reducing the charge by Rmb0.1/kWh could save roughly Rmb15mn, equivalent to about 25% of total revenue, and raise IRR by approximately 0.3 percentage points. Finally, UBS expects the existing tender pipeline to translate into delivery with a 6–12 month lag, supporting installation growth from 4Q26 through 2027. Greater participation by renewable generators in market transactions could also widen peak-to-trough power-price spreads, improving BESS arbitrage revenue. The report identifies slower-than-expected installation growth and geopolitical risks involving the US and Europe as major downside risks; faster installation growth and overseas share gains by Chinese energy-storage companies are identified as upside risks.

Analysis framework

UBS uses an expert call to assess demand conditions and project economics, comparing tender volumes with installed capacity, then linking policy design, operating costs, capacity payments, ancillary-service revenue and electricity-price spreads to provincial project IRRs and the likely timing of installation conversion.

Methodology notes

• Industry AnalysisSupply-demand framework

  Comparison of BESS tendering and installation volumes alongside the tender-to-installation conversion cycle.

  The report uses the gap between strong tenders and weak installations to diagnose near-term demand constraints and to support its expectation that delivery could accelerate after a 6–12 month conversion period.

• Other

  Project IRR analysis

  UBS assesses how capacity pricing, ancillary-service income, lithium costs and system operating charges affect storage-project returns across provinces.

Key data

• BESS tendering in 8M26413GWhUp 52% year on year.
• BESS installation in 8M2677GWhUp 2% year on year, indicating a large tender-to-installation gap.
• Average system operating charge in 9M26Rmb0.068/kWhUp 93% year on year.
• Shanxi example: savings from a Rmb0.1/kWh fee cutc.Rmb15mnEquivalent to c.25% of total revenue and an IRR improvement of c.0.3 percentage points for a typical 200MW/400MWh project.
• Estimated project IRROver 15% in Guangdong, Inner Mongolia and Shanxi; 8–9% in Gansu and NingxiaBased on current capacity pricing and a lithium price of Rmb150k/t.
• Tender-to-installation conversion cycle6–12 monthsSupports expected delivery pickup from 4Q26 through 2027.

Impact & implications

UBS argues that policy implementation and lower operating charges could make BESS project returns more visible and improve the conversion of tendered projects into installations. Wider peak-to-trough electricity-price spreads could provide a further uplift to arbitrage revenue as renewable participation in market transactions increases.

Risks

• Installation growth may be slower than UBS expects.
• Geopolitical risks involving the US and Europe could weigh on China’s energy-storage sector.