Analysis-China’s energy reforms, building of global data centers marked the battery boom

By Colleen Howe

BEIJING, Dec 22 (Reuters) – An upgrade to China’s electricity market is boosting the economy of energy storage just as international demand is rising, sparking a boom for Chinese energy storage makers that already dominate globally.

According to one estimate, Chinese firms are on track to grow 75% this year in global shipments of lithium-ion batteries for energy storage.

They exported more than $65 billion worth of storage batteries and electric vehicle batteries this year, cementing their dominance in a sector vital to supporting wind and solar power and keeping power flowing through AI data centers.

Sales growth is driven by domestic data centers and renewable energy sources, as well as Chinese reforms and subsidies that are boosting overall demand for energy storage. International demand is growing in tandem with rising data center growth, the need to support Europe’s aging grid and China’s burgeoning renewable energy business in the Middle East, analysts say.

GO GLOBAL

“These top energy storage cell makers have full orders. Many of them are basically working double shifts now to try to meet demand,” said analyst Cosimo Ries at political research firm Trivium China. The boom “is one of the biggest surprises of the year, I think, in China’s energy space.”

UBS last month raised its 2026 forecast for global battery energy storage installations by 25%.

The International Energy Agency estimates that global investment in battery storage facilities will increase by 16% this year to $66 billion. Much of this will be captured by Chinese firms, because while Tesla is number one in energy storage systems, China dominates the production of tiny cells inside them.

All six of the world’s top cell suppliers – Contemporary Amperex Technology Ltd (CATL), HiTHIUM, EVE Energy, BYD, CALB and REPT BATTERO – are Chinese, according to a January to September ranking by consultancy Infolink. Of the top 10, only Japan’s AESC is not from China.

EVE’s energy storage sales volume increased by 35.51% in the first three quarters compared to the same period last year. REPT BATTERO shipments of all batteries in the third quarter set a record. Top EV players CATL and BYD made no energy storage deliveries in the third quarter. Storage has historically accounted for less of their revenue than car batteries and electric vehicles, although the proportion is growing.

“Coupling solar power with storage has effectively become the only solution for meeting the energy needs of US AI data centers,” UBS analyst Yishu Yan said in a media briefing. “Power demand for AI data centers in the US is very robust, but energy is the biggest bottleneck, and US baseload power – gas, nuclear, thermal – is not going to grow much over the next five years.”

However, Yan said, Chinese manufacturers face risks due to US restrictions on projects receiving investment tax credits involving “foreign entities of interest”, which include China.

The transformation of the energy market

China’s battery exports, including for electric vehicles and energy storage, hit a record $66.761 billion in the first 10 months of the year, according to data from energy think tank Ember. Batteries were China’s most profitable clean-tech export in 2022, surpassing solar PV.

It is likely to rise again next year, as consultancy Infolink anticipates that global shipments of energy storage cells could rise to 800 gigawatt-hours, a 33% to 43% increase over forecasts this year.

China’s exports of energy storage batteries and other non-auto batteries rose 51.4 percent in the first 11 months from the same period last year, faster than the 40.6 percent increase in electric vehicle battery exports, according to the China Electric Vehicle Industry Strategic Technology Innovation Alliance.

China already has the world’s largest battery energy storage fleet — about 40 percent of the global total — driven in part by local government mandates for developers to add storage to wind and solar projects. China’s battery storage this year surpassed the capacity of conventional hydropower, a more geographically limited technology that uses water stored behind dams to generate electricity when needed.

However, much of this battery storage capacity remained idle as operation was not profitable.

That model is changing with reforms in June that required newly built projects to sell their power through market-based auctions instead of at a fixed rate. As a result, it has become more profitable to run a storage plant that profits by reloading when prices are low and unloading when prices are high.

Energy storage plants operated more in the third quarter after the reforms were passed, reaching an average of 3.08 hours per day, up 0.78 hours from a year earlier and 0.23 hours from the past three months, according to the China Electricity Council.

This comes amid a new $35 billion government plan to nearly double battery storage by 2027, as well as new provincial subsidies. Since the end of 2024, 10 Chinese provinces have launched capacity tariffs — special payments to suppliers to keep capacity on standby — in addition to other subsidies, according to Jefferies.

It’s “the most decisive policy change for energy storage in over a decade,” Jefferies analyst Johnson Wan wrote in a note.

(Reporting by Colleen Howe; Editing by William Mallard)