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Battery storage companies eye AI but grid and supply challenges

Battery storage firms in the U.S. see a surge of interest from AI data centers that are power-hungry. However, long queues to connect to the grid as well as a supply chain heavily reliant on China hinder the industry's capacity to scale quickly.

Batteries are increasingly being used in regions with a high renewable energy supply, such as California, to help meet the demand at night when solar power begins to fade.

They are now emerging as a solution that is promising for data centres. Installed in front of the meter they can optimize transmission line capacity and smooth out power demand. They can be installed behind the meter to manage power spikes, reduce consumption of power when the grid strains, cover temporary outages, and reduce dependence on backup diesel generators.

However, experts say that the industry is still facing bottlenecks.

Harvest-Time Obadire is a senior power and renewables analysts with BMI.

He said that while data centers can be constructed in as little as 18-24 months, connecting the?grid in some parts of the US can take up to seven years.

The power demand from data centers could rise quickly

Data centers may account for 9% to 17% (or more) of the total electricity consumed in the U.S. Electricity supply could reach 790 terawatt hours (TWh) by 2030, compared to around 4% today.

According to the Solar Energy Industries Association, in 2025 the U.S. will have added a record-breaking 57.6 gigawatt hours of battery energy storage, bringing the total installed capacity to 166.1 gigawatt hours.

The group predicts that annual battery storage deployments by 2030 will reach 110 GWh. A significant portion of this is driven by the data center demand.

These systems also work well with the natural gas-fired generator, which is becoming a popular solution for data centers that are energy-intensive.

Ben Hertz Shargel, Wood Mackenzie's global head of grid transformatio, said that batteries will be a vital resource for data centers that rely on gas generators. Gas generators cannot keep up with the volatile AI datacenter demand.

This demand is driving deals. According to CEO Julian Nebreda, energy storage company Fluence has been involved in more than 30 GWh in data center projects worldwide, including a significant portion in the U.S.

Tesla made $430 million last year by selling its storage systems to Elon Musk's xAi. Calibrant Energy also agreed to supply a 31 MW/62 MWh energy storage battery system for an Aligned campus data center in the Pacific Northwest.

Batterie storage companies are increasing their efforts to increase domestic production and calibrate offerings for "hyperscalers".

Nebreda said that Fluence views this as a strategic advantage and intends to grow it.

SUPPLY CHAIN AND INTERCONNECTION CHAOS However, it is difficult to quickly add new battery capacity.

While the U.S. increases its domestic capacity for lithium ion-phosphate batteries, the supply chain remains heavily dependent on China. This creates bottlenecks in the near term as tax credit regulations increasingly demand non-China sourcing.

RBC Capital Markets Analyst Chris Dendrinos said: "This is a great opportunity to scale US Manufacturing that would otherwise have been priced out. However, sourcing materials outside of China needs to be further developed."

The grid interconnection queues continue to be a bottleneck for front-of-the meter battery projects that are connected to it. This can cause delays in projects across the country by several years.

PJM interconnection, the biggest grid operator in the nation, halted the processing of new applications for connecting to the grid in 2020 after becoming overwhelmed with projects. They began accepting new applications a few months ago.

Nebreda stated that if it weren't for the long interconnection queues we could deploy an utility-scale storage system within a year and meet the needs of electric grid. (Reporting and editing by Liz Hampton, Tasim Zaid and Kavya Baliaraman)

(source: Reuters)