China May Tighten Approval of New Energy Storage Capacity Amid Oversupply Concerns

China may tighten approval of new energy storage capacity projects as authorities move to assess growing capacity and address rising concerns over overexpansion and price competition in the sector.

Several industry sources said that relevant authorities are conducting a comprehensive assessment of existing and planned energy storage capacity. Projects that are still at the planning stage and have not formally started construction may be temporarily suspended, while projects that have already been filed and are under construction are not expected to be affected.

Industry sources said that the possible tightening would not be implemented as a blanket measure and that future action could be adjusted according to actual market demand. An industry executive said the energy storage sector still has significant growth potential, but expansion needs to be managed more rationally to prevent excessive capacity and ensure healthy and orderly development.

The possible shift in policy comes as the growth of China’s new energy storage market shows signs of slowing despite continued expansion in cumulative installations. Data from the China Energy Storage Alliance showed that cumulative installed capacity of new energy storage reached 168.3 GW/448.7 GWh by the end of June 2026, representing year on year growth of 59 percent and 71 percent, respectively. The figure was 15 percent higher than at the end of 2025.

At the same time, newly commissioned new energy storage capacity in the first half of 2026 stood at 21.81 GW/58.60 GWh, with power and energy capacity declining 18 percent and 16 percent year on year, respectively.

At the 2026 World Power Battery Conference, several industry representatives said the energy storage sector was moving from a period of rapid capacity expansion towards a new stage focused on value creation and high quality development. Multiple government departments also highlighted the need to strengthen capacity monitoring and regulation.

Industry participants broadly expect energy storage capacity expansion during China’s 15th Five Year Plan period to shift from rapid growth towards stricter control of new projects.

The potential tightening follows a period in which energy storage battery cells were in short supply. Academician Ouyang Minggao of the Chinese Academy of Sciences said that China’s total lithium ion battery shipments reached about 1,875 GWh in 2025, up 53 percent year on year and accounting for more than 80 percent of global shipments. China’s lithium battery industry has become a major pillar of its new energy sector.

Wang Shijiang, deputy director of the Electronic Information Department of China’s Ministry of Industry and Information Technology, said that the country has established a complete energy storage industrial chain covering raw material refining, material production, battery manufacturing and system integration.

The continued increase in cumulative installations alongside a temporary decline in new additions indicates that the industry is entering a period of adjustment after several years of capacity driven expansion.

The energy storage market remained strong during the first half of 2026, when battery cells were reportedly in short supply and prices faced upward pressure from costs and demand. The situation encouraged companies to accelerate capacity expansion. Several leading companies announced capacity expansion plans last year, while more new entrants joined the energy storage sector.

However, industry participants said that the supply shortage was temporary and could ease as new production capacity comes online.

Tian Qingjun, senior vice president of Envision, attributed the surge in first half demand to three factors. The implementation of the capacity electricity pricing mechanism under Document No. 114, combined with renewable energy curtailment pressures, drove a sharp increase in domestic demand. Overseas buyers also accelerated purchases ahead of a reduction in export tax rebates. In addition, battery capacity construction takes about one year, meaning the sudden increase in market demand caught manufacturers off guard.

The current supply shortage is therefore unlikely to continue indefinitely. As newly built capacity begins production, the industry is expected to face a new round of capacity consolidation in the coming years.

Tian said that planned expansion of energy storage battery cell capacity this year had already exceeded 800 GWh. Capacity expected to be completed by the end of the year is estimated at 1.2–1.5 TWh, while total planned capacity has exceeded 2 TWh.

According to Tian, this planned capacity is far beyond actual global market demand. He also warned that battery cell manufacturing requires continuous production, meaning serious overcapacity could push companies into price competition as they seek to maintain utilisation and production.

Concerns over excess capacity have strengthened calls from industry executives to curb what is described in China as “involution”, particularly irrational price competition. Lü Jian, chairman of Shenzhen Pengcheng Infinite New Energy, said that highlighting a particular technical parameter could attract attention in the short term, but companies could ultimately pay the price for excessive competition over the longer term.

The industry’s concerns have also been echoed by regulators. Liu Min, chief engineer of China’s State Administration for Market Regulation, said that the deeper challenges facing the industry could not be ignored. Blind capacity expansion and low price competition were undermining the foundations of sustainable development, she said.

According to Liu, regulators have incorporated the prevention of excessive competition into a broader regulatory framework covering lithium batteries and other key sectors. Multiple departments are working on capacity monitoring and early warning, regulation of price competition and stronger product quality supervision to establish a market environment based on quality, reasonable pricing and fair competition.

Industry analysts believe the emerging approach will focus on restricting new capacity, optimising existing capacity and improving quality. For the energy storage sector, capacity assessments and efforts to regulate market competition are expected to become increasingly important.

Wang said that the Ministry of Industry and Information Technology would focus on guiding regions towards orderly capacity planning, strengthening lithium battery industry standards and making greater use of industry whitelists. The measures are intended to curb low price, low quality and homogenised competition.

Safety standards are also expected to raise entry barriers and help filter out lower quality capacity. He Penglin, deputy director of the Safety Technology Research Centre at the China Electronics Standardization Institute, said that  China has issued two mandatory national standards related to energy storage.

These include GB 40165-2021, which applies to energy storage systems below 100 kWh and fixed electronic equipment, and GB 44240-2024, which applies to energy storage systems above 100 kWh.

GB 44240-2024 introduced a shallow penetration test for battery cells and set requirements for thermal runaway testing, including provisions that heating and shallow penetration tests should not result in thermal runaway or fire.

In October 2025, China’s National Standardization Administration also issued plans to formulate and revise two mandatory national standards. He said that these standards could introduce additional requirements for battery systems in areas including active fire detection, fire suppression and early warning systems.

As competition intensifies, companies are also shifting their focus from simply expanding manufacturing scale to developing products for specific applications. Dong Bing, deputy general manager of Sany Group and general manager of Sany Lithium Energy, said that the company is focusing on AC side grid forming technology and the full EPC value chain, targeting microgrid applications in mines, oilfields, construction sites and ports.

Tian said that the era of using a single product across different applications was coming to an end, with energy storage solutions increasingly needing to be designed around specific application scenarios.

Long duration energy storage is meanwhile being viewed as a potential source of additional demand that could help absorb excess capacity. Yi Ziqi, vice president and chief technology officer of Hithium, said that periods of low electricity prices during midday renewable energy generation had extended from two to three hours to six hours or even more than eight hours, particularly during summer.

This means conventional storage durations are increasingly unable to cover the gap created by renewable energy oversupply and the need for greater grid absorption, Yi said.

He added that long duration energy storage was not simply about extending storage hours and faced four major challenges: high reliability, extremely low costs, high safety and the ability to deliver large scale power stations efficiently.

These requirements are also driving changes in energy storage system design, including significantly reducing the number of battery cells integrated into individual power stations, increasing system integration and improving manufacturing and project delivery capabilities.