Grid Bottlenecks Are Wasting Green Watts Everywhere – Even China

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Good morning!

A lot has been written about battery technology as it relates to the surging demand for power and the need for power storage to make already abundant renewable energy sources a viable and accessible avenue to join – not replace, mind you – fossil fuels in meeting U.S. electricity demands in the age of AI. We have noted in the past how the U.S. significantly lags behind China in developing and implementing advanced battery technologies, with Shenzhen-listed CATL CYATY epitomizing China’s lead in this respect.

Yet yesterday, Reuters reported that in the first half of 2026, China curtailed (a fancy word that basically means “threw out”) roughly 360 terawatt-hours of green energy – solar and wind. Per the report, that’s equivalent to the entire annual power demand of Mexico. While Mexico is after all, a country with a population size roughly one third that of the U.S., it was mind-boggling to us that this much power was essentially being wasted.

Part of this is due to inadequacies in battery storage even in China – even though its internally deployed battery storage represents half of global capacity, by far outstripping any other country. But the bigger culprit remains inadequacies in grid transmission: China’s grid is incapable of transmitting the vast amounts of solar power (in which it is the leader) from where it is generated (in Xinjiang, Gansu, and Qinghai) to where it is needed (in heavily populated industrial areas such as Guangdong, Jiangsu, and Zhejiang, for example).

That’s a problem China continues to share with the rest of the world, including the U.S. While this does not lessen the importance of continued progress in battery research and implementation, such capacity was always meant for smoothing out short-term (hours rather than days or weeks) spikes and valleys of solar and wind power, rather than longer-term storage.

In this, China has something in common with Texas and California, which are the two leading states in terms of renewable energy. Grid bottlenecks in Texas’s ERCOT result in a significant curtailment (frequently 10%-20%) of solar and wind power generated in the western part of the state because it cannot be routed to the eastern part of the state that makes up the majority of the state’s power demands. Similarly, sunny California sometimes curtails as much as 20% of its daily solar-power output due to inadequate transmission capabilities in the Golden State. 

There’s a long-term fix and a short-term bandaid for that. Over the longer term, the effort requires a massive, ponderous investment in High-Voltage Direct Current (HVDC) and Ultra-High Voltage (UHV) cables such as those made by Italy’s Prysmian Energy PRYMY, complete with AC-to-DC converter stations of the type made by the likes of GE Vernova GEV and Germany’s Siemens Energy SMERY. Such projections have helped boost the share prices of the companies mentioned above. GEV is up 68% YTD, for instance, while Prysmian and Siemens Energy are up 50% and 33% this year thus far, respectively. 

But AI- and data center-driven demand is surging now, and that means that shorter-term, stopgap solutions that make the grid we currently have, obsolete though it might be, perform at higher levels are in demand as well. This includes sensors, modular power flow controllers and advanced conductors. The benefits – a projected improvement in grid capacity/performance of 20% to 40% – will not ultimately be enough, but they can be deployed at significantly lower cost and without the enormous time investment required to deal with a patchwork mosaic of federal, state, and local regulators and jurisdictions. That’s helped Eaton Corp. ETN climb 44% this year so far, while Hubbell Inc. HUBB and Schneider Electric SBGSF are up 14% and 29% YTD, respectively. It helps that the grid-optimizing equipment they sell will also be compatible with the high-voltage supercorridors when they are eventually built.

Many of the hyperscalers have sought to bypass the grid bottlenecks by co-locating near existing power plants or building new data centers with their own small modular nuclear reactors. However, those bring their own challenges that make them partial solutions at best to the demand problem. 

In the meantime, the news out of China suggests that there, too, the demand for fossil fuels isn’t going anywhere. The Middle Kingdom is reviving its coal plants and even building new ones. In fact, policies setting a floor on demand for coal-generated output are part of the reason why renewable energy is being curtailed, while Chinese coal-power generation is projected to rise again this year, after declining last year. 

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