Analysis – China’s power reform, global data center construction enters battery boom

By Colleen Howe

BEIJING, Dec 22 (Reuters) – Reforms in China’s electricity market are boosting the economy of energy storage as international demand grows, boosting the already global dominance of Chinese energy storage producers.

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

They’ve exported more than $65 billion worth of storage and electric-vehicle batteries this year, cementing their dominance in areas important to backing up wind and solar and keeping power coursing through artificial-intelligence data centers.

Growth in sales is being driven by data centers and domestic renewables, as well as Chinese reforms and subsidies, fueling general demand for energy storage. International demand is on the rise due to growing growth in data centers, the need to back up Europe’s aging grid and China’s growing renewable energy business in the Middle East, analysts say.

Going global

“These major energy storage cell manufacturers, they have full orders. Many of them are now working double shifts to try and meet demand,” said Cosimo Reese, an analyst at policy research firm Trivium China. The boom is “the biggest surprise 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 forecasts global investment in battery storage facilities to grow 16% to $66 billion this year. Most of them are set to be taken over by Chinese firms as Tesla is number one in energy storage systems, with China dominating the production of the tiny cells inside them.

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

EVE’s energy storage sales volume was up 35.51% in the first three quarters compared to the same period last year. REPT BATTERO’s third-quarter shipments of all batteries set a record high. Top EV players CATL and BYD did not break even with energy storage shipments in the third quarter. Storage has historically earned less than automotive batteries and EVs, although the ratio is increasing.

“Coupling solar with storage has effectively become the only solution to meet the power needs of US AI data-centers,” UBS analyst Yeshu 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 — they’re not going to grow much over the next five years.”

However, Yan said, Chinese manufacturers face risks from U.S. restrictions on projects that receive investment tax credits involving “concerned foreign entities,” including China.

Power Market Shake Up

China’s battery exports, including EVs and energy storage, hit a record $66.761 billion in the first 10 months of the year, according to data from energy think tank Amber. Batteries have been China’s most lucrative clean-technology export since 2022, overtaking solar photovoltaics.

This is likely to increase again next year, as consultancy Infolink estimates that global energy storage cell shipments could increase to 800 gigawatt-hours, a 33% to 43% increase over this year’s forecast.

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% increase in EV battery exports, 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 by local government mandates for developers to add storage to wind and solar projects. This year China’s battery storage surpassed the capacity of traditional pumped hydro, a geographically limited technology that uses water stored behind dams to generate electricity when needed.

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

That model is changing with reforms in June that required newly built projects to sell their power through market-based auctions instead of fixed rates. As a result, it has become more profitable to operate a storage plant that makes a profit by recharging when prices are low and discharging when prices are high.

After the reforms were passed, energy storage plants ran longer in the third quarter, reaching an average of 3.08 hours per day, up 0.78 hours from a year ago and 0.23 hours from the previous three months.

This is happening against the backdrop of a new $35 billion government plan to nearly double battery storage by 2027, as well as new provincial-level subsidies. Since late 2024, 10 Chinese provinces have rolled out capacity tariffs — special payments to providers to keep capacity on standby — in addition to other subsidies, according to Jefferies.

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

(Reporting by Colin Howe; Editing by William Mallard)