Lithium-ion batteries have emerged as the electrochemical shock absorbers of the US energy transition, bracing the country's increasingly renewables-rich power grid for a widely anticipated generational jolt from electric vehicles, datacenters and clean technology manufacturing hubs.

Battery peaker plants designed to meet daily power surges are on pace to overtake annual natural gas additions in 2024 for the first time and also surpass total installed hydroelectric energy storage capacity, according to federal government and private sector outlooks, marking a dramatic rise for a technology that only began arriving in significant volumes this decade.

"You've gone from being this potential technology to being one of the technologies that's being relied on in a few of the largest power markets, and I think that's building a track record," John Zahurancik, president for the Americas region at battery technology supplier Fluence Energy Inc., said in an interview at the American Clean Power Association's energy storage summit in late June in Portland, Ore. "That's a crossing of the Rubicon in some senses."

But to continue its ascent, the US battery storage industry must navigate serious perils, ranging from geopolitics and general elections to shifting supply chains, grid bottlenecks and permitting barriers, according to Zahurancik and other top executives.

"The execution in the near term is all around supply chain resilience," added Jeff Waters, CEO of Powin Energy Corp., a peer of Fluence.

Waters credits China for industrializing lithium-iron phosphate (LFP) batteries, a lithium-ion chemistry that avoids risks associated with cobalt and nickel materials and has earned the favor of big battery builders.

"The way they've driven down the pricing of LFP batteries has been the key enabler," Waters said. "Cell supply is in abundance, which means the pricing is very low. That's been great for our business."

US battery cell production, on the other hand, lags far behind domestic demand.

"It's definitely the bottleneck when it comes to the supply chain for the US," Waters said.

Supply pipelines are in flux, with domestic factories developing thanks to lucrative tax incentives in the 2022 Inflation Reduction Act (IRA) and Chinese imports facing a potential tripling of tariff levels in 2026, pending the outcome of a recent Biden administration proposal to ratchet up duties to protect American manufacturers from "unfairly priced" shipments.

'Just a matter of time'

If tariffs on battery storage imports rise to 25% from 7.5% on Jan. 1, 2026, as proposed, and domestic production capacity continues to fall short of demand, the US power sector could remain tied to foreign factories, "meaning that prices will inevitably increase compared with today's levels," according to a recent S&P Global Commodity Insights report.

US battery storage executives, however, see alternatives emerging outside of China and applauded the Biden administration for providing transparency around its intended tariff boost.

"We can plan around it," Zahurancik said. "And those increases are much less than the decreases we've seen in cost."

Fluence, which was created out of battery storage technology teams at AES Corp. and Siemens AG in 2018, has secured LFP battery cells from AESC Group Ltd.'s factory in Tennessee, which it plans to assemble into modules in Utah beginning this summer.

"We're going from almost nothing to a substantial part now will start to be produced in the United States," Zahurancik said. "I don't think all of it will be here. There's a huge embedded industry in China. But there are reasons to put manufacturing in the United States and I think storage has a good opportunity to be one of those industries that thrives in the US."

KORE Power Inc. is among the US battery makers vying to bring domestic cell production capacity into better balance with demand.

"The industry can close the gap," KORE Power COO Michael Canada said on the sidelines of the Portland summit. "It's just a matter of time."

Backed by an $850 million conditional loan commitment from the US Energy Department, KORE Power is laying the groundwork for an initial 7-GWh factory in Buckeye, Ariz., to serve EV and energy storage customers. Module assembly is planned to start at the end of 2025, with cell production scheduled to reach full capacity in 2026.

"Demand is going to increase; the question is at what rate," Canada said.

The US battery manufacturing buildout leans heavily toward EV batteries. But given the uncertain pace of electric vehicle and energy storage markets, Canada expects most battery factories will move toward more flexible models to "pivot their production capacity from one industry to the next."

Beware of 'collateral damage'

LG Energy Solution Ltd. recently suspended a $2.3 billion LFP plant for energy storage in Queen Creek, Ariz., while continuing construction of a $3.2 billion EV battery plant at the site, highlighting uncertainties over the emergence of US battery factories.

However, an executive at US affiliate LG Energy Solution Vertech Inc. said in Portland that the suspension of the plant was only "half the story" and that LG intends to accelerate both the volume and timing of its US energy storage cell production, with further details to come later this summer.

Developers, meanwhile, are desperate for more US-made batteries.

"We are hammering our suppliers to get us domestic content," GridStor LLC CEO Chris Taylor said in an interview.

Using US cells can help developers meet requirements to qualify for a domestic content bonus tax incentive under the IRA.

Gridstor, which is focused on stand-alone battery storage, aims to qualify all of its projects for the additional incentive, which can add 10 percentage points atop a 30% investment tax credit.

"It's in our economic interest," Taylor said. "The way these incentives are structured ... it gives us a very clear signal."

In general, US battery storage executives are confident the industry will continue its momentum propelled by the long-term tax incentives in the IRA, which many view as safe even in a scenario where Republicans sweep US elections in November. But Taylor advises caution.

"Stand-alone storage in particular is much less of a flashpoint," Taylor said. "But there's a bunch of other related policy that can get changed where energy storage can be the collateral damage."

Grid interconnection reforms pushed by the Federal Energy Regulatory Commission are one such area.

"If somebody takes their foot off the gas on that issue at FERC, for instance, because they don't want to see a lot more renewables get built, that could put us as collateral damage," Taylor said. "We shouldn't be too cavalier that nothing's going to happen to us."