High peak hour power prices in China have emerged as the driving force behind a revival in the price of lithium, a key battery metal, which has risen by 25% over the past four weeks, and 50% since mid-June.
Previous sharp moves in the lithium price have been linked to demand for electric vehicles (EVs) but the latest bounce is directly connected to demand for battery energy storage systems (BESS) such as the Tesla Powerwall.
Contractors mount a Tesla Powerwall battery unit at a home in San Jose, California. Photographer: David Paul Morris/Bloomberg
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Most investment bank analysts missed the significance of a change in Chinese power pricing introduced in June which also removed a requirement for the compulsory inclusion of a battery energy storage system with all new wind and solar power installations.
The initial reaction was that the change would have a negative effect on lithium and other battery metals such as copper and cobalt because it reduced demand for back-up batteries.
But included in the changed regulations was a new electricity pricing mechanism which included increased variability to smooth overall demand with higher peak prices and lower off-peak prices, a perfect combination to encourage the installation of BESS systems.
UBS, an investment bank, noted the change in Chinese power pricing in a report published last week, written after a week-long tour of major Chinese cities by a team of its analysts.
The bank acknowledged an error an earlier report after a similar tour in May which resulted in a report which warned that removing the battery installation requirement would result in falling BESS orders in the second half of the year.
Rising Not Falling
“In actuality, BESS orders have risen dramatically,” UBS wrote.
“What we missed was the formation of intraday power price spreads, due to nascent market-based power pricing/trading reform, and a growing variable renewable energy share of total generation which is attracting BESS deployment to arbitrage intraday power price spreads.”
Other investment banks have noted the effect of the changed Chinese energy market which encourages the storage of electricity when it is abundantly available for use when supply declines.
CG Capital Markets said in a research note last week that it was upgrading its BESS estimates. When combined with demand from the EV sector it indicated that lithium demand would outstrip supply and the bring an oversupplied market back into balance.
Full BESS Order Book
UBS said one Chinese BESS maker it visited during its tour of major Chinese companies said its production order book was sold out until next February to approved projects and not speculative developers.
The effect of a second major market developing for lithium can be measured in falling inventories as companies making batteries for EVs and BESS systems compete for supply.
UBS said falling inventory was potentially setting up the market for a downstream restock with indications that that the lithium market is heading towards deficit pricing.
Brine ponds and lithium processing areas of the Chilean company SQM in the Atacama Desert of Chile. (Photo by Martin Bernett, AFP, via Getty Images)
AFP via Getty Images
CG agrees that there is a sea-change moving through the lithium market. Its supply/demand model points to a surplus, which has suppressed the price of the metal for last three years, morphing into a deficit as soon as next year.
UBS is more cautious with surplus conditions in the lithium market until 2027 with a modest deficit from 2028.
Investors should treat the latest lithium news with care because it has been a mercurial commodity for the past 10 years with roller-coaster tendencies.
The price might be up 50% since mid-year but an alternative view is that the price is down 85% from the peak prices of three years ago.
But the key factor in what the banks are seeing in China is that a BESS represents a second growth market for lithium.
Source: https://www.forbes.com/sites/timtreadgold/2025/11/24/chinese-battery-energy-storage-boom-drives-a-lithium-recovery/
