THE NEW YORK TIMES: China’s electrostate is poised to win from war in the Middle East

TAIPEI, Taiwan — The war in the Middle East has disrupted oil and gas supplies, jolting governments around the world to confront the urgent need for power grids that can withstand future shocks.

But for many countries, the push to build grids based on renewable energy is creating a new dependence on technology from China.

Chinese companies dominate the manufacturing of nearly every component of a modern grid, including solar panels, high-voltage cables, transformers and batteries that store energy for later use.

Even before the war in Iran, they were expanding abroad, helping countries build grids designed to meet the heavy electricity demands of artificial intelligence.

For decades, China has poured hundreds of billions of dollars into green energy, making it a cornerstone of the country’s drive for energy independence. It also blocked foreign companies from competing in large segments of its domestic market, such as manufacturing wind turbines and electric car batteries, to ensure that Chinese companies could grow into giants.

Now the war with Iran has laid bare the risks of reliance on Middle Eastern oil and gas. Countries are realizing that all paths to renewable power run through China and its exporters.

Even if a ceasefire between the United States and Iran helps ease disruptions in the Strait of Hormuz, the shock has already grabbed the attention of governments worldwide. Faced with energy shortages, they are accelerating efforts to upgrade their power grids, bringing them to the doorstep of Chinese companies eager to supply them.

“This is the right time for a shock like the war in Iran to suddenly catalyse even more investment and interest in renewables,” said Cory Combs, an associate director at Trivium China, a research and advisory firm.

Chinese companies increasingly produce the most affordable and most efficient renewable energy and grid storage technologies, Combs said. “You’re not going to compete with China at this point.”

Last month, the Philippines said it was working to bring 22 new renewable power plants online within weeks to shore up grid stability.

Already a major destination for Chinese investment in energy infrastructure, Brazil took bids in late March for the construction of new power plants, and is set to do so again this month for large-scale battery storage.

“Brazil needs technology in this area, and China has a lot to contribute,” said Larissa Wachholz, a partner at Vallya, a firm that consults with Chinese and other international companies doing business in Brazil. The war in the Middle East has been “a huge reminder that the world will need even more energy,” she said.

China is the main trading partner for most countries worldwide and the dominant or near-exclusive supplier of essentials like rare-earth metals and solar panels. But governments in Europe and elsewhere are growing uneasy that this reliance could undermine their economic and national security, especially after the past year, when China shut off much of the world’s supply of certain rare earths.

Sales of essential electricity-related equipment are already growing rapidly. Global shipments of batteries used to store electricity for a grid — a sector dominated by Chinese firms — nearly doubled in the first three months of the year, said Matty Zhao, head of Asia-Pacific oil, gas and basic materials research at BofA Global Research, a unit of Bank of America.

“After the war ends, countries around the world will continue to need to build out more of their energy network,” Zhao said.

Chinese battery manufacturers and renewable energy equipment makers were already raising money in Hong Kong to fund an overseas push, anticipating a surge in demand from power-hungry AI systems. But the war has added fresh urgency and new opportunities.

Last May, Contemporary Amperex Technology Ltd., or CATL, the world’s largest maker of electric vehicle batteries, set off a wave of listings with Hong Kong’s biggest public offering since 2021.

Another battery maker, Shuangdeng Group, followed in August. Since then, other companies have lined up to do the same, including Sungrow, which makes energy storage systems; Ningbo Deye, a producer of solar equipment; and Sieyuan, which makes crucial components for energy grids such as transformers.

These companies are now spending to expand beyond China. In February, Sungrow announced plans to invest 230 million euros (about $270 million) for its first European plant, in Poland, to produce energy storage equipment. In March, Hithium, which has also applied to go public in Hong Kong, signed a letter of intent to build a 400 million-euro battery plant in northern Spain.

Since the war began, CATL has seen surging demand in Europe for home battery systems and growing interest in Asia in grid storage batteries, a company spokesperson said, especially in countries with limited electricity and little domestic oil. He said that the company could not immediately expand capacity but that it had accelerated some projects.

Fierce competition at home has pushed Chinese makers of energy storage and grid equipment to sharpen their manufacturing, innovate faster and look overseas for growth.

Beijing has tolerated “brutal domestic competition requiring companies to continuously innovate in order to stay in the game,” said Frank Haugwitz, a consultant specializing in China’s solar sector.

Renewable energy was once expensive and unreliable. It was impossible to control the intensity of the wind and the sun, and power came in bursts that grids could not absorb. Batteries and storage systems now capture that excess energy and release it when needed.

For years, high battery costs made renewable systems less competitive than fossil fuels. But advances in technology have brought costs down; renewable power paired with storage is now almost on par with the cost of conventional fuels, said Combs from Trivium.

Chinese companies dominate not just batteries and grid hardware but also, increasingly, the software that manages energy flows. While some governments may be wary of giving Chinese firms access to their grids via the software, they are likely to keep buying the hardware since they have few affordable alternatives, Combs said.

Chinese businesses also lead in producing a new generation of battery chemicals that allow large amounts of electricity to be stored when the sun is shining or the wind is blowing, and can be used later to power homes, electric vehicles and data centers.

The new chemistry uses lithium-ion batteries made with iron and phosphate. These batteries hold slightly less energy in the same space as older lithium-ion batteries that rely on nickel and cobalt but cost about 99% less. For grid storage, where space is less of a concern, the bulkier size matters far less.

China produces nearly all of the world’s lithium iron phosphate batteries, according to the International Energy Agency.

The two dominant Chinese players are BYD, which has surpassed Tesla to become the world’s largest electric carmaker, and CATL, the leading shipper of grid storage batteries.

As in other industries, Chinese firms’ dominance in energy technology was forged through intense competition for the enormous domestic market. China has spent years building out renewable energy and grid infrastructure at a scale no other country has matched. Last September, Xi Jinping, China’s top leader, announced plans to expand wind and solar capacity sixfold from 2020 levels, adding up to 3,600 gigawatts.

CATL’s battery factories are vast and highly automated, stretching as long as six football fields laid end to end. The company is building them at a rapid clip to keep up with the surging demand.

At its latest project in Yancheng, a port city about 200 miles north of Shanghai, more than 100 backhoes, bulldozers and other heavy machinery moved across a muddy construction site early this month.

“It feels like the CATL construction site is developing very quickly,” said Luo Lijuan, a street cleaner who had been posted for the past month at the site’s entrance. “It changes every day.”

This article originally appeared in The New York Times.

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