China's role as an energy storage innovation leader

All eyes in the energy storage sector are on China, with the Far East nation playing a pivotal role in industry innovation. China’s commitment to battery and storage research and development is the envy of the world and, as of 2022, the nation had a 77% share of global battery cell manufacturing capacity. 

As a result, it came as no surprise when Pacific Green—which has a history of working in partnership with Chinese clean technology and battery manufacturers—announced in June that it had expanded its China-based support team to secure a long-term supply of advanced battery technology for its growing global project pipeline. 

Active in China since 2017, Pacific Green embarked on a recruitment drive this year that has seen the company’s Shanghai team grow beyond 50 people for the first time. 

Consequently, the company’s head of energy storage engineering, Howard Banks, is perfectly placed to lift the lid on energy storage innovation in China. 

Banks is steeped in the battery industry and his previous roles have included hybrid systems technical lead at McLaren Applied Technologies and head of energy systems at Bentley Motors. 

He was also head of technical and application engineering at Britishvolt, a UK startup that tried to disrupt the global battery manufacturing status quo and win market share from leading Chinese players. 

In discussion with Tamarindo Finance Quarterly, Banks shared his views on why China is leading on innovation, what advantages the country has in the global energy storage market, which markets have the potential to challenge the Far East nation’s dominance and the latest energy storage trends emerging from China.

How has China become an energy storage world leader?  

Firstly, why has China established itself as a world leader in energy storage innovation? “Obviously China's an energy storage technology leader but also, crucially, they have the supply value chain as well,” says Banks. 

He points out that six out of the top 10 global battery manufacturers (CATL, BYD, CALB, Farasis Energy, Envision AESC and Sunwoda) are headquartered in China and they spend billions on research and development. 

“They've got a unique environment that has been driven by investment in their own energy transformation,” he adds.

The China Electricity Council (CEC), in a yearly report, said the country’s installed wind and solar capacity will overtake coal for the first time this year. CEC data indicates grid-connected wind and solar would make up around 40% of installed power generation capacity by the end of 2024, compared with coal's expected 37%. 

This environment has played a key role in the development of China’s energy storage industry, according to Banks. “China has a huge domestic energy transformation occurring,” he says. 

“And then they've got a very proactive policy from government and all of the states have five-year plans, so energy storage is a key focus area in the government roadmaps.” 

Banks says such factors have created an environment that is particularly conducive to the rapid growth of the country’s energy storage sector. 

“There's a strong emphasis on technological innovation in terms of their [China’s] own energy transformation—batteries are required to support the significant solar and wind capacity that is being installed by adding stability to the grid,” he adds. 

“They're hugely incentivized and, as such, they're continually pushing the boundaries for greater energy, density, and lower cost, for example.”

The Chinese government has also been at the forefront with respect to energy storage-related policy, according to Banks. 

“In terms of their policy, they were very much leaders in the field—the EU and the US are only just now starting to write batteries into their strategies, whereas China was doing it 10 to 20 years ago, so they have a decade, if not more, of that internal market development and investment that the rest of the world is trying to catch up with.” 

With China home to more than three-quarters of global battery manufacturing capacity, it occupies a dominant position that makes it difficult for manufacturers in other countries to compete. “It's going to take some time for Europe and the US to ramp up production,” says Banks. 

“And even when they are in opposition from a raw materials point of view, they're still going to be relying on China, which has really cornered the market.” 

Banks, given his experience at Britishvolt, is aware of the challenges facing battery manufacturers based in markets other than China. “It's very hard to compete,” Banks says. 

He adds that battery manufacturers in other countries will often not be getting the same levels of government support enjoyed by their Chinese counterparts. 

Banks says the big challenges facing non-Chinese battery manufacturers are, firstly, securing funding and policy support for their initiatives and, secondly, if they are successful in securing such backing, competing with China, which is the dominant force.

Who can challenge China's dominance?

Germany has been tipped by some analysts as the country best placed to challenge China’s dominant position in battery manufacturing. Does Banks agree? 

“Well, the US has huge policy incentives, they're really trying to get battery manufacturing off the ground—however, Germany is leading in Europe in this regard and is one of the big players,” he says. 

Banks adds that Germany’s prowess in the automotive industry is key in this respect. “Obviously, Germany has a strong automotive industry, which is central to the country's economy, and as such, all the German OEMs are scrambling to create their own battery production facilities.”

But the fact is that battery manufacturers in the EU and the US face an uphill battle. “The EU and the US are going to have to be a little bit innovative and think outside the box because China has a very well-developed supply chain,” Banks says. “That's really the main challenge for western companies. 

“China has had a decade of experience to build these supply chains, and for the new players for Europe, sustainability and supply chain resilience is important.” 

This is especially the case in Europe where the EU’s Batteries Regulation is forcing battery manufacturers to reduce the carbon footprint relating to the sourcing, processing and trading of batteries, Banks says. “That's a great thing, but it's put some constraints on what is possible.” 

Banks also highlights another challenge, which is that China already manufactures enough batteries to meet entire global demand. 

“Given there's such manufacturing capacity available [in China], then it's going to make life difficult for any new entrant because already China can create enough for everybody—and they could do it at a lower cost base.”

This dominant market position means China can provide the best technology at the cheapest prices, Banks says. Meanwhile, he adds that any environmental and social concerns related to doing business with China apply to all industries, not just battery manufacturing. 

“Our approach at Pacific Green is we have an office in China and the purpose of that is to get us access to the best technology and be face-to-face with our suppliers,” Banks says. “Our guys are in the factory doing quality assurance all the way through to builds. 

Supply chain is a game changer for Pacific Green

“One of the unique elements of Pacific Green is our supply chain—a lot of smaller companies find it difficult to onshore and get a reliable Chinese supply. That's been a game changer for us, to have the local interface, to be on the ground, making sure everything's as legitimate as it should be.” 

Banks says lithium-ion phosphate (LFP) chemistry is being more widely deployed in energy storage and this is another market that China is steeped in. “This type of technology is cheaper to manufacture than other technologies,” explains Banks. “It has a high cycle life, so the lifetime of the cells is longer. 

Compared to other lithium-ion battery chemistries, LFP batteries have got greater thermal stability, “so they're safer and they're more environmentally friendly in terms of the chemicals that are going in,” says Banks. “But China has had a decade start in building these because the patent only expired in 2022.” 

Banks also highlights the considerable innovation in battery cell capacity that is taking place in China. “Cell capacity is increasing, we've got 300-amp-hour cells being mass produced and the top manufacturers are starting to release cells of over 500 amp-hours with cycle lives of around 12,000 cycles,” says Banks. 

“We’re moving forward rapidly in terms of capacity and as the cells’ capacity is increasing, the energy density of containerised energy storage products is also increasing.”

Banks adds that while 5 MWh in a 20-foot containerised battery is currently market-leading in terms of capacity, manufacturers in China are now producing 6 MWh or 7 MWh containers. 

“We’re also seeing a trend to integrate the AC and DC elements; right now, you buy battery containers, and you buy PCS [power conversion system] containers. They’re generally separate, but we’re starting to see them integrated, so in a single container you’ll see both the battery and the PCS elements.” 

This reduces complexity as it means a separate battery and PCS do not need to be linked, Banks says. “It means the design and route to market will be quicker.”

PCS products are also evolving, according to Banks. At present, PCS products are what is termed ‘grid-following’—they are attached to the grid and then they add current, though that has limitations in terms of grid stability, Banks says. 

“Now we’re seeing inverters—which are the main components of the PCS—with ‘grid-forming’ capability, which enables the inverter to act as a voltage source. Which means it can create an electrical grid rather than just be attached to one. This is supporting new applications like microgrids.”

China is clearly at the cutting edge of global storage development and Pacific Green’s strong presence on the ground in Shanghai means it is well placed to squeeze as much value as possible out of the next wave of innovation.

Adapted from a text first published in the Tamarindo Finance Quarterly.