Unlocking China’s V2G Potential: Opportunities and Challenges in the Evolving Market

China has announced a significant push towards large-scale Vehicle-to-Grid (V2G) pilot projects, as outlined in a new directive from the National Development and Reform Commission (NDRC) on September 10. This initiative aims to address the increasing strain on power grids caused by the rapid growth of New Energy Vehicles (NEVs) by leveraging V2G technology to balance electricity demand. The directive aligns with China’s broader carbon neutrality and energy efficiency goals. This article examines the opportunities these developments present for investors while addressing the key challenges in this evolving market.

V2G technology has emerged as a critical innovation in the global transition toward sustainable energy systems. In China, the rapid growth in the number of new energy vehicles (NEVs) is increasing demand for charging infrastructure, placing significant pressure on local power grids. By enabling bi-directional energy flow between electric vehicles and the power grid, V2G offers a new solution for balancing power supply and demand, promoting renewable energy development, and providing economic benefits to EV owners. V2G technology holds significant development prospects and market potential.

In this article, we navigate the policy environment for V2G’s development in China, opportunities for investors, as well as potential challenges.

What is V2G?

V2G technology represents an innovative energy system where electric vehicles (EVs) function as energy storage devices, enabling the bi-directional transfer of electrical energy between their batteries and the power grid.

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This means EVs can both draw power from the grid for charging and feed excess power back into the grid, facilitating energy interconnection. This technology transforms EVs into mobile power sources with storage and dispatch capabilities, enhancing the flexibility and sustainability of the energy system. The implementation of V2G technology involves charging infrastructure and grid technology on the grid side, and vehicle battery technology on the user side.

Application scenarios and value of V2G in China

The bi-directional flow of energy between EVs and the grid is important because of the following factors:

• Balancing grid supply and demand: V2G technology effectively balances the supply and demand of the grid. By using EVs as distributed energy storage devices, V2G can help stabilize the grid, making it more resilient to fluctuations in energy production and consumption.
• Providing emergency backup power: In the event of power outages, V2G technology can be applied in microgrid systems to provide emergency backup power for critical loads.
• Smart charging: V2G technology involves smart charging, which means EVs can charge during off-peak hours when electricity is cheaper and discharge during peak hours when electricity demand is high.
• Enabling energy trading: EV owners can sell excess power back to the grid through V2G technology, generating economic benefits and providing an additional income source.
• Promoting renewable energy development: As renewable energy becomes more prevalent, V2G will play a crucial role in the power system. EVs will act as storage devices for renewable energy, ensuring a stable power supply.

V2G technology is currently in the demonstration application stage. In China, pilot V2G charging stations have been established in multiple cities, with commercial operations being explored. Several car manufacturers are also actively investigating V2G technology.

China’s policy landscape for V2G development

In January 2024, the NDRC issued the Implementation Opinions on Strengthening the Integration and Interaction Between New Energy Vehicles and the Power Grid, proposing the V2G concept and urging the development of information technology platforms and regulatory policies to support its widespread implementation. The NDRC emphasized the need for an initial framework, focusing on institutions such as businesses, government offices, car rental services, school buses, and public transportation. This phased approach aims to demonstrate V2G’s potential to the public by integrating it into sectors with high energy demands.

In September 2024, the NDRC released the Notice on Promoting Large-Scale Application Pilots for Vehicle-to-Grid (V2G) Interaction, inviting cities with high and imbalanced electricity usage to apply for designation as pilot reform sites. The document set targets for 60 percent of charging to occur during off-peak (valley) hours by 2025, as defined by China’s time-of-use (TOU) power pricing system. Additionally, it outlined that the cumulative power released back to the grid should not fall below 500 kWh per pilot city and no less than 100,000 kWh annually.

While technical and business model challenges remain, including unresolved power market reforms and evolving battery technologies, these pilot projects are crucial to refining V2G implementation at scale. If successful, this policy could significantly enhance China’s energy storage capacity, supporting its broader renewable energy goals and enabling greater grid flexibility by 2030.

Drivers for China’s V2G market growth

European countries and the United States are leading the development of the V2G industry, offering relatively mature operational and management systems. In China, while the market is still in its early stages, its long-term comparative advantage is strong. Since 2022, China has been implementing V2G-related policies aimed at advancing the supply chain and technology across industries. This step-by-step approach is designed to gradually scale up V2G implementation from pilot sites to full city-wide integration.

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Aligned with its carbon peaking and carbon neutrality goals, China is committed to increasing the share of new energy systems through targeted policies. The integration and restructuring of resources between the electric vehicle industry and power grid operations will continue to receive strong government support, creating significant growth potential for the V2G market.

By September 2023, China’s NEV fleet had reached 18.21 million, and experts predict it will grow to 85 million by 2030 and exceed 300 million by 2040. By then, electric vehicle electricity consumption is projected to rise by 2.68 trillion kilowatt-hours annually, accounting for 17 percent of the country’s total electricity usage, with peak daily charging power potentially reaching 587 million kilowatts.

To support the rapid growth of NEVs, China has developed the world’s largest and most comprehensive charging infrastructure system, catering to a wide range of vehicles. This has gradually fostered a positive cycle of mutual reinforcement between EVs and charging infrastructure. By February 2024, China had installed 9.023 million charging facilities, marking a 63.7 percent year-on-year increase. With a vehicle-to-charging pile ratio of 1:2.4, this infrastructure largely meets the demands of the fast-developing NEV market. This expansive charging network lays a robust foundation for the future rollout of V2G technology, further enhancing the integration between the NEV ecosystem and the power grid.

For vehicle owners, V2G offers an economic benefit by allowing them to charge at lower off-peak prices and sell stored energy back to the grid during peak hours, capitalizing on the price difference. In July 2024, the largest price difference reached RMB 1.74/kWh (US$ 0.25) in Shanghai. In other major power-consuming provinces and regions, such as Tianjin, Guangdong, and Hebei, the price difference exceeded RMB 1/kWh (US$ 0.14). As China’s NEV market expands and the peak-to-valley price differential in the power grid increases, more users are likely to adopt V2G systems, highlighting the substantial development potential for V2G in China.

Challenges and opportunities co-exist

V2G technology offers mutual benefits for both the power grid and users, yet realizing its large-scale commercial potential demands further exploration.

From a technological perspective, NEVs need to support bidirectional charging technology. Currently, companies like WM Motor and Great Wall Motors in China have successfully developed and tested related models. In January 2024, NIO, an automobile manufacturer in China, officially announced that the first ten V2G charging stations in Shanghai had officially commenced operations. The deployment includes scenarios such as corporate parks, office buildings, shopping malls, and residential communities. Furthermore, various branches of State Grid are launching virtual power plant management platforms and peak-shaving power platforms for charging stations to facilitate the implementation of V2G technology.

Beyond the technological infrastructure of public facilities, considerable challenges still exist. First, V2G will increase the number of charge and discharge cycles, thereby shortening battery lifespan. Consequently, implementing the discharge function raises higher quality and performance requirements for batteries.

Additionally, while China has a large number of charging stations, the vast majority lack the capability to supply power back to the grid. Upgrading these stations will incur substantial costs. Furthermore, due to the different peak and valley pricing mechanisms in China’s electricity trading market, inter-regional and inter-provincial transaction mechanisms are still not fully developed, making it difficult for the V2G business model to achieve widespread applicability.

Future prospects of China’s V2G market

The V2G market in China is currently spearheaded by the State Grid, which collaborates with NEV manufacturers and charging station operators to formulate market strategies. As the number of EVs increases and renewable energy becomes more prevalent, the scale of V2G systems is expected to expand significantly. In the future, V2G will integrate with smart grids to enable more intelligent and efficient energy management. Furthermore, V2G technology is anticipated to play a larger role in the energy market, offering solutions for balancing power supply and demand and fostering the development of renewable energy. China’s V2G market is poised to become another blue ocean with significant growth potential.

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