Analysis: China’s energy reforms and global data center construction usher in battery boom

By Colleen Howe

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

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

This year they have exported more than $65 billion in electric vehicle and storage batteries, consolidating their dominance in a sector vital to supporting wind and solar power and keeping power flowing through artificial intelligence data centers.

The sales increase is driven by domestic data centers and renewables, as well as Chinese reforms and subsidies that are driving overall demand for energy storage. International demand is rising alongside “accelerated 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 GLOBALIZE

“These major 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 policy research firm Trivium China. The boom “is one of the biggest surprises of the year, I think, in China’s energy space.”

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

The International Energy Agency forecasts that global investment in battery storage facilities will rise 16% this year to $66 billion. Much of that will be captured by Chinese companies because, while Tesla is number one in energy storage systems, China dominates production of the small cells they contain.

The six main global cell suppliers (Contemporary Amperex Technology Ltd (CATL), HiTHIUM, EVE Energy, BYD, CALB and REPT BATTERO) are Chinese, according to a ranking from January to September carried out by the consulting firm Infolink. Of the top 10, only Japan’s AESC is not from China.

EVE’s energy storage sales volumes increased by 35.51% in the first three quarters compared to the same period last year. Shipments of all REPT BATTERO batteries in the third quarter set a record. Major EV players CATL and BYD did not break out energy storage shipments during the third quarter. Storage has historically accounted for less of its revenue than car batteries and electric vehicles, although the share is growing.

“Combining solar with storage has effectively become the only solution to meet the power needs of America’s AI data centers,” UBS analyst Yishu Yan said in a press conference. “Power demand from US AI data centers is very strong, but power is the biggest bottleneck, and US baseload power (gas, nuclear, thermal) will not grow much over the next five years.”

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

RECOVERY OF THE ENERGY MARKET

China’s battery exports, including those 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 have been China’s most lucrative clean technology export since 2022, surpassing solar photovoltaics.

That figure is likely to grow again next year, as consulting firm Infolink anticipates that global shipments of energy storage cells could rise to 800 gigawatt-hours, a 33% to 43% increase from this year’s forecasts.

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

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

However, much of that battery storage capacity has remained idle because it was unprofitable to operate.

That model is changing with June reforms that required new construction projects to “sell their power through market-based auctions, rather than at a fixed rate.” As a result, it has become more profitable to operate a storage plant that profits by reloading when prices are low and unloading when prices are high.

Energy storage plants ran longer in the third quarter after the reforms were approved, reaching an average of 3.08 hours per day, 0.78 hours more than a year earlier and 0.23 hours more than the previous three months, according to the China Electricity Council.

This comes against the backdrop of a new $35 billion government plan to nearly double battery storage by 2027, as well as new subsidies at the provincial level. Since the end of 2024, 10 Chinese provinces have implemented “capacity fees” (special payments for 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 more than a decade,” Jefferies analyst Johnson Wan wrote in a note.

(Reporting by Colleen Howe; Editing by William Mallard)