China’s $7 trillion energy overhaul fueled a ‘gold rush’ in batteries

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Chinese companies from food makers to tech start-ups are increasingly entering the country’s energy storage sector, spurred by massive government spending on President Xi Jinping’s plan to achieve energy independence.

The number of Chinese enterprises registered as energy storage companies has more than doubled in the past three years to nearly 109,000, according to data from Chinese companies information provider Aikicha.

Yijing Wang, founder of Hangzhou-based 2060 Advisory, a cleantech-focused investment advisory firm, said there was a “gold rush” with a “dramatic” increase in the number of entrepreneurs, state-backed and private sector investors targeting batteries. Technologies and Projects.

“We have seen this change in just two to three years. This is an existing industry. , , But it wasn’t sexy,” she said.

Energy storage, which includes large battery packs for grid-level storage, is seen as a key pillar in China’s energy system, as Xi calls for almost zero net carbon dioxide emissions by 2060 and a peak before 2030. promised to reach carbon.

Goldman Sachs estimates that energy storage, opened up by China’s energy policies, will be part of an infrastructure investment opportunity worth more than $7 trillion by 2040.

However, batteries are prone to cycles of boom and bust as people without expertise chase state funding. In recent years, thousands of companies have started developing electric vehicles and computer chips after Beijing prioritized the sectors for funding. The energy storage crowd has the same characteristics.

In one example, Nanfang Black Sesame Group, China’s largest pureed food maker, said in March that Jiangxi Xiaohei Xiaomi Food, a wholly-owned subsidiary of the Shenzhen-listed company, would move its business from food to energy storage and invest Rmb3.5bn. ($490mn). ) in building a lithium battery production base.

The battery technology supports plans by the world’s biggest polluter to cut coal use and deploy massive amounts of solar and wind power. It provides backup when renewable energy sources do not produce enough electricity.

Goldman estimates that China needs about 520 GW of energy storage by 2030, of which 410 GW will come from batteries. This reflects a 70-fold increase in battery storage levels in 2021.

Nikhil Bhandari, co-head of Goldman’s Asia-Pacific natural resources and cleantech research team, described energy storage in China as a “key enabler for round-the-clock renewable energy.”

Wang of 2060 Advisory said many businesses in China are encouraged by the certainty provided by Xi’s climate change commitments. This is in stark contrast to the regulatory uncertainty that has plagued growth industries previously popular for investors, including consumer-facing services and technology, as well as education.

The broad backdrop of slowing global economic growth and a weak outlook for the pace of China’s recovery following the pandemic also understandably make it harder for investors to find bright spots in the Chinese economy, he said.

Neil Beveridge, an analyst at Bernstein in Hong Kong, said “overcapacity remains the biggest risk” facing investors buying into China’s battery value chain, though he added that scale and technology are also likely to be “long-term winners across companies.” confined to a narrow group”.

Beveridge also pointed to a US policy aimed at cutting US reliance on Chinese cleantech manufacturers, including battery makers. He said China’s isolation on the international stage is the “biggest worry for investors”.

“Although China has lost the US market, it still dominates other markets and will be a leading player in Europe,” he added.