IEA Sounds the Alarm on Battery Supply Challenges

The International Energy Agency (IEA) has warned about growing risks in the global battery market as demand for energy storage continues to rise. Lithium-ion battery energy storage systems, or BESS, have become a key part of modern power systems. Over the last five years, global battery storage capacity has grown twenty times, driven by falling prices, abundant supply, and shorter project lead times.

Batteries are now essential for balancing supply and demand and keeping power grids stable, especially as renewable energy use increases.

In 2025, battery prices fell further, making energy storage more affordable for utilities and businesses. Average global battery prices dropped by 8 percent, with battery energy storage systems seeing the largest declines, now costing about one-third of what they did in 2020. This has made investing in energy storage more attractive and economically practical.

Despite these price drops, large differences remain between regions. Battery packs in China are significantly cheaper than in the United States and Europe, by 30 and 35 percent respectively. China now produces more than 80 percent of all batteries worldwide. The country’s cost advantage comes from advanced manufacturing, large-scale production, and cheaper materials.

Lithium iron phosphate (LFP) batteries, which are simpler and cheaper than alternatives like nickel cobalt manganese oxide (NMC) batteries, accounted for over 90 percent of global battery storage systems in 2025. While LFP prices have dropped further, many producers are operating at a loss, which could lead to market consolidation.

The IEA also highlighted serious supply chain risks. Over 90 percent of battery storage relies on LFP batteries, which mostly come from China. This dependence creates vulnerabilities, especially since China has imposed export controls on key battery materials. Europe and the United States face challenges in building local supply chains because production costs are up to 50 percent higher and factories rely heavily on imported materials.

To address these risks, experts say international cooperation and major investments are needed. Expanding production outside China requires stable demand and partnerships with experienced manufacturers. New technologies, such as sodium-ion batteries, could also help diversify supply, but most production is still based in China.

The IEA stresses that solving these supply chain challenges is essential for the growth of battery energy storage. Strong, resilient supply chains are needed to support the global shift to clean energy and ensure that modern power systems remain reliable and flexible.

As more manufacturers like QuantumScape Corp. (NYSE: QS) enter the battery industry outside China, the landscape could change and the excessive control China exerts on this industry could begin to wane.

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