Analysis-China’s power reforms, global data centre buildout usher in battery boom

By Colleen Howe

BEIJING, Dec 22 (Reuters) – A revamp in China’s electricity market is boosting the economics of energy storage at a time of rising international demand and fueling a boom for Chinese energy storage manufacturers that already dominate the world.

Chinese companies are on track for a 75% increase in global shipments of lithium-ion battery cells for energy storage this year, according to one estimate.

They have exported more than $65 billion worth of storage 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.

The increase in sales is due to Chinese reforms and subsidies that have increased overall demand for domestic data centers and renewables, as well as energy storage. Analysts say international demand is rising with rising growth in data centers, the need to support Europe’s aging grid and China’s burgeoning renewable energy business in the Middle East.

BEING GLOBAL

“These leading energy storage cell manufacturers are full on orders. Many are essentially working double shifts to meet demand,” said analyst Cosimo Ries of policy research firm Trivium China. The explosion “I think is one of the biggest surprises of the year in China’s energy field.”

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

The International Energy Agency predicts global investment in battery storage facilities will increase 16% this year to $66 billion. Most of these will be taken over by Chinese companies because while Tesla is number one in energy storage systems, China dominates the production of small cells within them.

The top six global cell suppliers are all Chinese, including Contemporary Amperex Technology Ltd (CATL), HiTHIUM, EVE Energy, BYD, CALB and REPT BATTERO, according to Infolink consultancy’s January-September ranking. Only Japan’s AESC is in the top 10, not China.

EVE’s energy storage sales volumes increased by 35.51% in the first three quarters compared to the same period last year. REPT BATTERO’s entire battery shipments in the third quarter reached a record level. Top EV players CATL and BYD did not increase energy storage shipments in the third quarter. Storage has historically accounted for less of its revenues than automotive batteries and EVs, although the rate is increasing.

“Pairing solar energy with storage has effectively become the only solution to meet US AI data center power needs,” UBS analyst Yishu Yan said in a media briefing. “US AI data center power demand is very strong, but power is the biggest bottleneck, and US baseload power (gas, nuclear, thermal) will not increase much in the next five years.”

But Chinese manufacturers face risks due to U.S. restrictions on projects receiving investment tax credits involving “related foreign entities,” including China, Yan said.

ENERGY MARKET SHAKING

China’s battery exports, including electric vehicles and energy storage, reached a record level of $66.761 billion in the first 10 months of the year, according to data from energy think tank Ember. Batteries have surpassed solar photovoltaics to become China’s most lucrative cleantech export since 2022.

That figure is likely to rise again next year, with consultancy Infolink predicting global energy storage cell shipments could rise 33% to 43% from this year’s forecast to 800 gigawatt hours.

China ⁠According to the Electric Vehicle Industry Technology Innovation Strategic Alliance, China’s exports of energy storage and other non-automotive batteries increased by 51.4% in the first 11 months compared to the same period last year; this was faster than the 40.6% growth in EV battery exports.

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

However, much of the battery storage capacity remained idle because it was not profitable to operate it.

This model is changing with reforms in June that require newly built projects to sell their energy through market-based auctions rather than a fixed price. As a result, it has become more profitable to operate a storage facility that makes a profit by recharging when prices are low and discharging when prices are high.

According to the China Electricity Council, energy storage facilities operated longer in the third quarter after the reforms were adopted, reaching an average of 3.08 hours per day; This was an increase of 0.78 hours compared to the previous year and 0.23 hours compared to the previous three months.

This is happening against the backdrop of new subsidies at the state level, as well as a new $35 billion government plan to nearly double battery storage space by 2027. Since late 2024, 10 of China’s provinces have introduced capacity tariffs (special payments to suppliers to keep capacity on standby), among other subsidies, according to Jefferies.

This is “the most decisive policy change for energy storage in more than a decade,” Jefferies analyst Johnson Wan wrote in a note.

(Reporting by Colleen Howe; Editing by William Mallard)