China's power reforms, global data centre buildout usher in battery boom

Highlights:

• China lithium-ion battery cells for energy storage tipped to jump 75% this year
• China dominates production as global, domestic demand climb
• Surge driven by data centres, China renewables and reforms

A revamp of China's electricity market is boosting the economics of storing power just as international demand surges, sparking a boom for the Chinese energy storage manufacturers that already dominate globally.

Chinese firms are on track for a 75% jump this year in global shipments of lithium-ion battery cells for energy storage, 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 backing up wind and solar and keeping power coursing through artificial-intelligence data centres.

The surge in sales is driven by data centres and renewables domestically, as well as by Chinese reforms and subsidies that are boosting general demand for energy storage. International demand is rising in tandem with the surging growth in data centres, a need to back up Europe's ageing grid and China's burgeoning renewable energy business in the Middle East, analysts say.

Going global

"These leading energy storage cell makers, they have full orders. Many of them are basically working double shifts now to try and 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."

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 will rise 16% this year to $66 billion. Much of that is set to be captured by Chinese firms because while Tesla is number one in energy storage systems, China dominates production of the tiny cells inside them.

All of the six top global cell suppliers - Contemporary Amperex Technology Ltd, 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 volumes rose 35.51% in the first three quarters from 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 out energy storage shipments through the third quarter. Storage has historically made up less of their revenue than automotive batteries and EVs, although the proportion is growing.

"Pairing solar with storage has effectively become the only solution for meeting US AI data-centre power needs," UBS analyst Yishu Yan told a media briefing. "US AI data centre power demand is very robust, but power is the biggest bottleneck, and US baseload power - gas, nuclear, thermal - they won't grow much in the next five years."

However, Yan said, Chinese manufacturers face risks from US restrictions on projects receiving investment tax credits that involve designated "foreign entities of concern", which include China.

Power market shake-up

China's battery exports, including for 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 Ember. Batteries have been China's most lucrative clean-technology export since 2022, surpassing solar photovoltaics.

That is likely to grow again next year, as consultancy Infolink anticipates global energy storage cell shipments 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 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 - some 40% 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 overtook its capacity of conventional pumped hydro, a geographically more limited technology that uses water stored behind dams to generate electricity when needed.

However, much of that battery storage capacity has 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 at a fixed rate. As a result, it has become more profitable to run a storage plant that profits by recharging when prices are low and discharging when prices are high.

Energy storage plants ran longer in the third quarter, after the reforms passed, hitting an average of 3.08 hours per day, up 0.78 hours from a year earlier and up 0.23 hours from the previous three months, according to the China Electricity Council.

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 for providers to keep capacity on standby - in addition to other subsidies, according to Jefferies.

It is "the most decisive policy shift for energy storage in over a decade", Jefferies analyst Johnson Wan wrote in a note.