Marketwatch: China’s battery boom spells trouble for global storage

Pumped hydro storage has traditionally dominated in China, but the country is set for a surge in battery storage that could disrupt global supply chains


October 6, 2023

  • Pumped hydro storage dominates in China, but lithium-ion batteries’ share of the mix has hit 30%, a new high
  • China’s drive for energy self-sufficiency means battery storage will have to increase 70-fold
  • With domestic demand rising, how long can global market rely on Chinese battery imports? 

There has been talk of a ‘battery gold rush’ in China due to energy storage now being seen representing a major investment opportunity in the country after China’s leader Xi Jinping pledged to make the nation carbon neutral by 2060. Goldman Sachs has predicted that the pledge will trigger $7 trillion in energy infrastructure investment by 2040.

And the early signs are that the Chinese battery industry is already making an increasingly significant contribution to the country’s decarbonisation efforts. Data published by the China Energy Storage Alliance (CNESA) earlier this month revealed that pumped hydro’s share of the nation’s energy storage capacity dropped to 69.1 per cent in June this year (Figure 1), which is notable because it represents the first time that its share has ever dropped below 70 per cent. To put this in context, pumped hydro’s share had dropped below 80 per cent for the first time at the end of 2022. What this means is that “new energy storage” as CNESA refers to it – in other words, lithium-ion batteries, lead-acid batteries, flow batteries, flywheel energy storage and compressed-air energy storage to name the most prominent technologies – now constitute just over 30 per cent of installed storage capacity in China, a record high.

Figure 1 Source: China Energy Storage Alliance

Why has there traditionally been so much pumped hydro storage in China? Pumped hydro is seen as essential to providing flexibility to China’s power system and has been viewed as a priority in the country’s energy transition. Additionally, focussing on pumped hydro has made sense because the country’s production of oil and gas, for example, has been relatively low – China produces 5 per cent of the world’s oil (Figure 2) and 5 per cent of the world’s natural gas (though it is the world’s biggest producer of coal, accounting for 50 per cent of the global total, Figure 3). That said, as shown below, China’s fossil fuel consumption per capita is less that that of the US, Australia and Europe (Figure 4) Fortunately for China, as the International Hydropower Association has highlighted, “Endowed with high mountain valleys and large rivers, China has benefitted hugely from the development of its water resources over recent decades. Consequently, since the turn of the century, China has more than quadrupled its installed hydropower capacity, thereby accounting for over a half of worldwide hydropower growth. As of 2022, China had 45.7GW of pumped storage hydropower, more than twice as much as second ranked Japan (21.8GW) and the third-placed US (19.2GW).

Figure 2 Oil production by country (Source:
Figure 3 Coal production by country (Source:


Figure 4 – Source:

But times are changing and Goldman Sachs’ forecasts show that, in order to reach energy self-sufficiency, China will require 520GW of storage, more than 75 per cent of which will come from batteries – 70 times higher than 2021. The remainder of the storage increases will come from pumped hydropower facilities. So, in effect, the country’s pumped hydro/battery storage ratio will have to be inverted. Therefore, it is no surprise that the number of Chinese enterprises registered as energy storage companies has more than doubled in the last three years to almost 109,000.

However, the booming Chinese battery storage industry could spell trouble for the global storage sector. As more and more energy storage companies emerge in China, domestic demand for batteries could skyrocket with the result that there are fewer Chinese batteries available for export. China’s share of global lithium-ion battery manufacturing capacity stood at 79 per cent in 2021, and no country gets even close to competing. Energy storage companies worldwide are heavily dependent on Chinese battery exports. From January to October 2022, China exported 3.195 billion lithium-ion batteries, up 18.16% year-on-year, with an export value of US$39.754 billion, up 82.74% year-on-year. Figures for 2021 show that China exported lithium-ion batteries to more than two hundred countries and regions worldwide. Analysis has shown that Hong Kong SAR, Vietnam, India, the US, South Korea, Germany, Poland, Malaysia, Hungary and Taiwan are China’s major lithium-ion battery export destinations by export volume.

But the indications are that battery exports from China are not guaranteed, and the US, one of the biggest buyers of Chinese batteries, is looking particularly vulnerable. Data shows that China-US trade fell by 14.5% in the first half of 2023 compared to a year ago. Commenting on the decrease, China’s ambassador to the US, Xie Feng said: “This is a direct consequence of US moves to levy Section 301 tariffs on Chinese imports, abuse unilateral sanctions and further tighten up export controls. Livelihoods of many families have been affected, and businesses from both countries have borne the brunt.”

It’s not difficult to see the possible emergence of a massive problem for the US, a country that imported $13.9 billion worth of lithium-ion batteries in 2022, of which two-thirds ($9.3 billion’s worth) were imported from China (Figure 5). To add some context, the global lithium-ion battery market was valued at $45.7 billion in 2022.

Figure 5 (Source: Statista)

The waters are further muddied by the fact that the energy storage sector itself has been the scene of US-China tensions in recent months. In May this year, the US Department of Energy withdrew a $200 million grant that had been awarded to Microvast – a manufacturer of lithium-ion batteries for energy storage – amid allegations that the company had close ties with the Chinese government and Chinese Communist Party. In response, Yang Wu, Microvast CEO, said: “Microvast is based in Texas, its shares are traded on Nasdaq, and the operations for our global business are centralised in the US. Neither the Chinese government nor the Chinese Communist Party has any ownership in the company, nor do they control or influence company operations in any way.” Other US energy storage companies are known to be more relaxed in their attitudes to Chinese battery manufacturers and take the more pragmatic view that if they are helping to advance the energy transition by efficiently producing low-cost batteries, that’s all to the good.

The Biden administration has taken steps to try and reduce the US’ reliance on Chinese battery manufacturers. Last month, the US Department of Energy announced a $15.5 billion package of funding and loans, which included $3.5 billion to boost production of advanced batteries and battery materials for clean energy industries, including electric vehicles and energy storage. But catching up with China will be a very slow process – it is anticipated that the US’s share of global lithium-ion battery manufacturing, will only increase by 0.1 per cent between 2021 and 2025, rising from 6.2 per cent to 6.3 per cent.

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