Battery storage firms are experiencing unprecedented interest from AI data centres, yet they face significant hurdles due to lengthy grid connection queues and a supply chain reliant on China.
- Battery storage firms are experiencing unprecedented interest from AI data centres, yet they face significant hurdles due to lengthy grid connection queues and a supply chain reliant on China.
- Building data centres typically takes 18 to 24 months, but connecting to the grid can extend to three to seven years in certain US regions, creating a bottleneck for battery storage projects.
The Rise of AI Data Centres and Their Energy Needs
As AI technology continues to advance, the demand for power from data centres is projected to increase dramatically. According to the Electric Power Research Institute, power consumption from data centres could account for 9 to 17 per cent of US electricity supply by 2030, equating to approximately 790 terawatt-hours (TWh) compared to around 4 per cent today.
Battery Energy Storage Systems: A Key Solution
Battery energy storage systems play a crucial role in managing energy supply and demand. These systems can absorb excess power when supply is high and discharge it back to the grid when needed. They are particularly beneficial in renewable-heavy regions like California, where they help meet evening demand as solar power decreases.
Installed strategically, battery systems can smooth power demand and optimize transmission capacity. They provide essential benefits, such as managing demand spikes, reducing energy use during grid strain, covering temporary outages, and decreasing reliance on backup diesel generators.
Challenges in Scaling Battery Storage
Despite the promising outlook, the battery storage industry is grappling with several challenges. Harvest-Time Obadire, a senior power and renewables analyst with BMI, highlights that supply chain constraints and interconnection queues are among the most significant barriers faced by the industry.
Building data centres typically takes 18 to 24 months, but connecting to the grid can extend to three to seven years in certain US regions, creating a bottleneck for battery storage projects.
Battery Deployment Statistics
In 2025, the US added a record 57.6 GWh of new battery energy storage capacity, according to the Solar Energy Industries Association (SEIA), raising the total deployed capacity to 166.1 GWh. Projections indicate that by 2030, annual battery storage deployments could reach 110 GWh, largely driven by the increasing demand from data centres.
Natural Gas and Battery Synergy
Battery systems are increasingly viewed as complementary to natural gas-fired generation, which is becoming a critical solution for energy-intensive data centres. Ben Hertz-Shargel, global head of grid transformation at Wood Mackenzie, notes that batteries will serve as a vital resource for data centres reliant on onsite gas generation, given that gas generators may not respond quickly enough to meet volatile demand from AI data centres.
Investment and Project Developments
The surge in demand is driving significant investment and project development. Energy storage company Fluence is currently engaged in over 30 GWh of data centre-related projects globally, with a noteworthy portion based in the US. CEO Julian Nebreda emphasises the strategic advantage of establishing a domestic manufacturing footprint before the AI boom, as this positions Fluence to continue growing and investing in the sector.
Tesla also reported substantial revenue from its storage systems, earning $430 million last year from sales to Elon Musk’s xAi. Additionally, Calibrant Energy has committed to providing a 31 MW/62 MWh battery energy storage system at an Aligned data centre campus in the Pacific Northwest.
Supply Chain Constraints and Interconnection Issues
While the US is expanding its domestic lithium-ion phosphate battery manufacturing capacity, the supply chain for essential materials remains heavily dependent on China. This reliance creates near-term bottlenecks, especially as tax credit regulations increasingly favour non-China sourcing. RBC Capital Markets analyst Chris Dendrinos points out that there is an opportunity to scale US manufacturing, but sourcing materials from outside China requires further development.
Moreover, interconnection challenges continue to hinder the deployment of front-of-the-meter battery projects. PJM Interconnection, the largest grid operator in the US, effectively paused processing new grid connection applications in 2022 due to an overload of projects. It only recently resumed accepting applications after addressing the backlog.
Julian Nebreda reflects on this challenge, stating, “Were it not for multi-year interconnection queues, we could deploy a utility-scale battery storage system in under a year to meet the needs of the electric grid.”
Looking Ahead
The outlook for battery storage firms remains promising as they navigate these challenges. With the growing demand from AI data centres and the potential for policy shifts that favour domestic manufacturing, the industry is poised for growth. However, addressing supply chain dependencies and interconnection bottlenecks will be crucial for realising this potential.
