The U.S. market for grid-scale battery storage surged to its best first quarter in history this year, highlighting how data centers and surging power demand are bolstering the industry despite federal policy headwinds.
The Solar Energy Industries Association and the research firm Benchmark Mineral Intelligence said Thursday the industry installed 9.7 gigawatt-hours of new capacity in the first three months of the year, a year-over-year spike of 32 percent. The increase occurred despite permitting issues and trade uncertainty under the Trump administration.
“Energy storage is no longer just for backup, it’s critical energy security infrastructure,” Shan Tomouk, lead battery storage analyst at Benchmark, said in a statement.
Electricity demand is shaping the broader energy sector. Among other things, battery installations are helping ease the risks of power outages this summer despite the growth of artificial intelligence, the nation’s grid watchdog said Tuesday.
Currently, utility-scale projects dominate roughly 75 percent of the storage market, but data centers and other “behind-the-meter” applications are projected to increase their share from 14 percent to 20 percent by decade’s end, according to the report.
Large technology companies have announced multiple deals for grid batteries, including for advanced technology that gets away from the widely used lithium-ion models. Google announced plans in February to deploy 30 GWh of long-duration “iron-air” batteries in Minnesota. Meta has reserved up to 100 GWh of capacity for a reversible solid oxide fuel cell technology from Noon Energy.
The idea with the newer technologies is to allow backup for longer periods of time, even if some systems may be at a higher cost point.
“These systems provide 100+ hours of discharge, enabling these facilities to maintain critical uptime during multiday renewable energy lulls. Other data centers will continue to opt for a multi-stage battery approach, with lithium-ion systems in use for peak shaving outside the facility,” the report said.
While batteries historically have been paired with renewables, large data center operators are sometimes pairing themwith natural gas, which is powering much of the AI boom. Elon Musk’s xAI Colossus facility in Tennessee uses Tesla batteries combined with gas turbines, for example.
Energy storage targets in 13 states also are helping boost grid batteries. Texas, Arizona and California have the largest energy storage markets overall and led utility-scale installations in the first quarter.
Trouble ahead?
The industry is facing several challenges, including uncertainty about “foreign entities of concern” rules under Trump’s megalaw aiming to restrict imports of components from China and other adversaries. Those rules kicked in in January for projects seeking tax credits, but the Treasury Department has not fully outlined guidance on complying with the rules.
The rules “present a significant barrier for both storage project owners and manufacturers. Asset owners must track Chinese involvement in the supply chain, ownership, and financing of any storage project beginning construction in 2026 or later,” said Allison Feeney, a storage analyst at Wood Mackenzie.
At the same time, many projects began construction in 2025 to get around the rules, so the market is unlikely to contract through 2027, she said.
Jason Burwen, vice president of policy and strategy at battery developer GridStor, said in an email he expects an “increasing volume of new battery supply that is intended to be FEOC-compliant.”
Because demand for storage is at an all-time high, the biggest industry challenges are “issues that affect deployment schedules — interconnection completion, local permitting, and long-lead equipment availability,” said Burwen, who was not involved with the report.
In the meantime, the industry has expanded domestic manufacturing capacity.
As one example, some automakers are pivoting to production of grid batteries at factories intended for electric vehicle components. Earlier this month, Ford joined Tesla and General Motors in announcing plans to manufacture energy storage systems at a plant in Kentucky.
Another factor affecting growth is Interior Department reviews for permitting of solar and storage projects, which SEIA said has left many projects in limbo. A federal judge blocked those reviews, but Interior has said it will appeal.
“The idea that a single judge could decide the process that we’re supposed to go through internally to make sure that we’re complying with the law through a complex permitting process is absurd,” Interior Secretary Doug Burgum said this month at a congressional hearing.
The report said residential storage also is facing challenges, declining 28 percent in the first quarter year-over-year, after a phase-out of a key tax credit in 2025 for home systems under the Republican megalaw.
