Impact of Tariffs and Data Centers on U.S. Battery Industry and Energy Costs

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**CTV Newsfeed for June 8, 2025**

**Climate Tech Venture Review**

**Main Highlights:**
– Tariffs could significantly impact battery storage in the U.S.
– The largest grid operator in America is shifting costs of data centers onto consumers.

**U.S. Battery Industry Under Threat from Policy Changes**
According to a report by The New York Times, the boom in U.S. battery manufacturing—a crucial element for decarbonizing the power grid—is facing increasing risks from shifting policies. While domestic production of lithium iron phosphate (LFP) batteries is on the rise, tariffs from the Trump administration and proposals from Republicans to reduce subsidies pose substantial threats to this progress. This volatility introduces uncertainty into a market that is essential for maintaining grid reliability, managing energy costs, and achieving long-term climate objectives.

**Key Insights:**
– LFP battery production is gaining traction in the U.S., with LG Energy Solution investing $1.4 billion in a Michigan factory that aims to meet a quarter of the nation’s demand. AESC has also commenced production in Tennessee.
– LFP batteries, which are more affordable and safer than nickel-cobalt alternatives, are vital for large-scale energy storage. However, China continues to dominate the supply chain, although LG aims to sever ties with Chinese materials by early 2026.
– Despite the U.S. being the birthplace of LFP battery technology in the 1990s, China capitalized on its commercial potential. Professor Arumugam Manthiram from the University of Texas remarked, “For a long time, we were not paying too much attention here in the U.S.”
– Tariffs on Chinese batteries surged to over 150% in April before a temporary rollback, and a new GOP budget proposal could effectively halt production and deployment tax credits.
– Tristan Doherty, Chief Product Officer at LG’s U.S. energy storage unit, Vertech, stated, “The dose makes the poison. A little bit of tariff can get us to a much better place, but too much too fast can kill us.”
– This uncertainty is affecting business planning and investment, with Doherty adding, “Investment, especially big investment, hates uncertainty.” Companies like Tesla and Fluence Energy are already reporting delays and reduced revenues due to shifting trade policies.

While initiatives from the Biden administration have promoted domestic production, the long-term sustainability of U.S. manufacturing depends on consistent and predictable support.

**CTVR Perspective:**
The challenges facing the localization of energy storage were anticipated, and the new tariffs have merely slowed progress. However, they could also serve as a catalyst for change. Companies like ESS, which produces flow batteries using locally sourced iron, and Xerion, based in Ohio, which recycles lithium-ion batteries, are essential to creating a resilient supply chain. This situation underscores how much the battery industry relies on policy decisions.

It is encouraging to see companies like LG and AESC invest in LFP production in the U.S., but the reality remains sobering: we are still heavily dependent on China. Any political regression on tariffs or tax credits could jeopardize the momentum we need to scale effectively. Batteries have become foundational to our energy landscape, and as Congress discusses trade and climate, it is crucial for the sector to receive more stability, not less.

At CTVR, we believe the U.S. storage market is at a pivotal moment: it must either double down on domestic innovation or risk hindering the clean energy transition.

**Data Centers Driving Up Electricity Costs**
A report from Bloomberg highlights that America’s largest power grid is raising alarms as the rise of data centers is pushing demand to unprecedented levels, consequently increasing electricity costs. An estimated $9.4 billion has been added to utility bills this year, impacting consumers in states like Virginia, Maryland, and Illinois, who are essentially subsidizing the energy needs of major tech companies.

**Key Insights:**
– Data centers have driven up PJM Interconnection capacity costs by 180%, with the most significant increases occurring in Virginia and Maryland.
– Monitoring Analytics, PJM’s oversight authority, noted that “the current conditions are not the result of organic load growth” but rather due to substantial additions from data centers.
– Brian George from Google acknowledged, “We have largely taken advantage of an overbuilt system… now imposing significant costs on the system.”
– PJM estimates that power consumption could increase by 70 GW over the next 15 years, surpassing its current generation capacity of 183 GW and exceeding the peak demand of 165.6 GW set in 2006.

This report comes just before a FERC technical conference that will explore whether deregulated markets can continue to provide affordable and reliable power in an era characterized by AI, electric vehicles, and cloud computing.

**CTVR Perspective:**
While we have covered companies like ESS Tech and Xerion that are innovating to reduce dependence on volatile mineral supply chains, this Bloomberg article serves as a stark reminder: breakthrough technologies will be ineffective if grid stress remains unaddressed. The U.S. power grid is being reshaped by large data centers, often constructed by some of the wealthiest tech firms without proper planning for financial responsibilities or infrastructure support.

However, promising solutions are emerging. Companies like Nexalus are working to reduce energy waste in data centers through advanced liquid cooling technologies, while LineVision enhances transmission capacity by up to 40% using machine vision and AI. Though these innovations won’t solve all issues, they pave the way forward, especially when combined with long-duration storage and improved grid intelligence.

Moreover, the broader implications cannot be overlooked. As demonstrated by our coverage of the Iberian Blackout, the integration of renewables into inadequately prepared grids highlights the costs of inaction. If data centers continue to consume power without a coordinated infrastructure response, we risk not only outages but also undermining the entire energy transition.

This situation transcends energy concerns; it encompasses fairness, foresight, and the future landscape of our digital lives.
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