China's Clean Energy Oversupply and UHV Grid Standard Exports: Trade Security Implications and Policy Responses

Executive Summary

China's overproduction of clean energy is a structural response to fill the domestic demand gap left by its real estate slump, a strategy now expanding from solar panels, batteries, and electric vehicles to the export of ultra-high voltage (UHV) grid standards. Despite grid curtailment reaching 360 TWh in the first half of 2026—a 49% increase year-on-year—Beijing continues to expand exports, reframing the issue not as an industrial policy failure but as a product of biased Western media perspectives. The market share of South Korea's three major battery companies in non-Chinese markets is already declining, making it highly likely that their competitive disadvantage in finished products will extend to higher-level sectors like energy storage systems (ESS) and grid infrastructure. Unilateral tariffs and certification regulations by the United States and the EU are insufficient to resolve this structural problem. South Korea must simultaneously participate in multilateral certification systems, secure a technological edge in ESS and next-generation batteries, and establish its own grid security standards. The most probable scenario is the inertial continuation of the current structure (55% probability), in which developing countries become increasingly dependent on Chinese standards while China's circumvention of developed markets through indirect exports intensifies.

I. Analysis of the Current Situation

China's UHV Grid Standard Exports and Clean Energy Oversupply: Analysis of the Current Situation

1. Background and Developments

China's clean energy export drive is not an isolated industrial policy but a structural response to fill the domestic demand gap created by its real estate market slump [3]. This pattern first emerged in the electric vehicle (EV) and battery sectors in the early 2020s [3][10]. It subsequently expanded to include steel, chemicals, machinery, and industrial robots [10]. Solar panels have been a core component of this export offensive from its initial stages [3].

China's current account surplus expanded from 0.7% of GDP in 2019 to 3.7% in 2025 [3][10], a figure indicating that a structure has become entrenched in which production capacity unabsorbed by the domestic market is offloaded abroad. In the first half of 2026, China curtailed 360 TWh of clean energy due to grid limitations—a 49% increase from the same period in the previous year [3]. This signifies that solar and wind power generation has already surpassed grid capacity. Beijing does not acknowledge this as an industrial policy failure; instead, it is waging a narrative campaign to reframe the issue as a problem of “biased perspectives in the Western media” [3].

The key aspect of the current phase is the expansion of this structure from EVs and batteries to solar and wind power, and now to power grid infrastructure itself. China is promoting a 'Global Super Grid' initiative aimed at establishing its domestic ultra-high voltage (UHV) transmission technology as the global standard. The German newspaper Frankfurter Allgemeine Zeitung reported, “Beijing is densely installing new UHV transmission lines domestically, and the government intends to make this technology the world standard to supply its domestically produced green electricity to the world” [11]. China's status as the world's largest producer of solar modules, EVs, and batteries is now translating into an effort to export its power grid standards.

2. Current Situation

Statistics from the battery sector clearly show the speed at which Chinese companies are encroaching on non-Chinese markets. From January to July 2026, global EV battery usage outside of China reached 316.2 GWh, a 25.8% increase from the same period last year [9]. The combined market share of CATL and BYD reached 44.6% even in these non-Chinese markets [9][7]. In contrast, the combined usage for South Korea's three major companies—LG Energy Solution, SK On, and Samsung SDI—was 86.1 GWh, an 8.9% decrease year-on-year [9]. A similar trend is evident in the finished EV sector. In August, China's EV exports reached 1.01 million units, exceeding 1 million for the third consecutive month and marking a 78% surge from the previous year. During the same period, new vehicle registrations in South Korea fell by 8.6%, indicating that the gap between production and domestic demand is becoming structurally entrenched [7].

The energy storage system (ESS) market is the next frontier for this structural expansion. The demand for large-scale power storage is growing in earnest, driven by the expansion of renewable energy, the need for grid stabilization, and the growth of data centers and AI infrastructure [2]. SNE Research forecasts that the global ESS battery market will expand from approximately 353 GWh in 2024 to about 1,870 GWh by 2035 [2]. Chinese manufacturers such as CATL, CALB, and EVE are already leading this market as well [2]. A trend is emerging where the pattern of overproduction and low-cost supply, established in solar, EVs, and batteries, is now shifting to ESS, grid infrastructure, and even the domain of power demand for AI data centers.

Responses from recipient countries are also taking shape. In the United States, the Trump administration issued an executive order broadly restricting the use of Chinese-made power grid equipment. The Nikkei reported that this measure has caused renewable energy projects to be delayed or face cancellation. Developers are postponing purchases, and lawyers are warning of rising costs [13]. A paradoxical situation is emerging where U.S. supply chain controls, set against the backdrop of soaring power demand from AI, are inadvertently burdening the country's own clean energy projects [13].

Defensive measures are also materializing in Europe. Germany is preparing a package of economic security measures, including new tariffs on hybrid electric vehicles. In response, China's state-run Global Times cited a German expert to argue that "such measures risk externalizing the problems of its own industry's competitiveness" [15]. The Chinese side is promoting a narrative that portrays Europe's tightening regulations as an attempt to conceal the failures of its own industrial policies.

3. Key Actors and Positions

Chinese Government and Companieshave a strategic interest in extending the production capacity advantage they established in solar, EVs, and batteries to the domain of power grid standards. Chinese multinational corporations like BYD, CATL, and Mingyang Smart Energy have already achieved leading global positions in the EV, battery, and wind turbine sectors. They are expanding their overseas investments by acquiring or building foreign manufacturing capabilities [12][17]. The UHV transmission technology, spearheaded by the State Grid Corporation of China, can be seen as an attempt to go beyond simple infrastructure exports and secure the power to set specifications for the future global electricity system [11]. In its 15th Five-Year Plan, Beijing announced it would introduce a 'capacity warning mechanism' to control excessive competition, or 'neijuan.' However, the pace at which leading companies like BYD are raising their overseas sales targets is outstripping policy implementation [7].

United Statesis facing conflicting policy pressures, caught between the surge in electricity demand from AI infrastructure and the risks of dependency on Chinese-made equipment. Excluding Chinese grid equipment through executive orders aligns with security logic, but it is causing short-term industrial side effects such as delays in clean energy projects and rising costs [13]. At the same time, Washington continues to redefine overproduction across the advanced manufacturing sector—including steel, EVs, batteries, and robots—as a security issue and is considering additional tariffs [10].

European Union and Germanyare on the front lines of China's oversupply and its push to spread its power grid standards. Germany's consideration of tariffs on hybrid vehicles is in line with the broader EU move to extend measures like the Carbon Border Adjustment Mechanism (CBAM) and anti-dumping duties from steel to EVs, batteries, and robots [10][15]. However, the Chinese side is contesting the legitimacy of these actions, framing them as an attempt by Europe to externalize its own competitiveness problems [15].

South Korean Companiesare facing dual pressure as their market share erodes even in non-Chinese markets. The declining share of LG Energy Solution, SK On, and Samsung SDI in these markets indicates a growing risk of supply chain dependency in both finished vehicles and batteries [9][7].

4. Key Issues

The debate over overproduction is shifting from competition over individual products like solar panels, EVs, and batteries to the infrastructure level of grid standards and integration [3][11]. The normalization of curtailment (the refusal of renewable energy generation) is an indicator of the limits of China's domestic absorption capacity [3], suggesting that export pressures will continue. A key issue remains that tariff responses alone are insufficient to restore the manufacturing bases of the U.S. and Europe [3]. In a phase of standards competition, leadership in technical specifications itself, rather than tariffs, is likely to be the decisive long-term factor. The surge in electricity demand from AI data centers is emerging as a new variable in this competition [2][13][18]. The projection that China's share of computing power will expand to 30% by 2030 [18] supports the trend of competition in clean energy and power grids merging with competition in AI infrastructure.

II. In-Depth Analysis

China's UHV Grid Standard Exports and Clean Energy Oversupply: In-Depth Analysis

1. Analysis of Root Causes

The starting point of this issue is the prolonged slump in China's real estate sector. The collapse of the structure where real estate investment was the main driver of GDP growth has simultaneously squeezed local government finances and household consumption [3]. Manufacturing exports were chosen as an alternative growth engine to fill this void. Solar, EVs, and batteries were the initial testing grounds for this alternative [3][10]. The fact that China's current account surplus more than tripled from 0.7% of GDP in 2019 to 3.7% in 2025 shows that this shift is not a temporary cyclical response but a fundamental reshaping of its growth model [3][10].

Industrial subsidies are a tool for implementing this shift, not its root cause. Local governments have competed to attract solar and battery production facilities to meet GDP targets and maintain employment. While this competition is a rational choice for individual local governments, at the national level it results in production capacity far exceeding domestic absorption capacity. The fact that 360 TWh of clean energy was curtailed in the first half of 2026 due to grid limitations signifies that this gap has already reached a physical limit [3]. The 49% year-on-year increase shows that the problem is accelerating rather than abating [3].

The reason Beijing has chosen a narrative strategy of reframing this situation as a matter of 'biased perspectives in the Western media' rather than an 'industrial policy failure' is clear [3]. Acknowledging overproduction would, domestically, invite criticism of local governments and, externally, provide justification for tariff responses. The reframing strategy is a choice to avoid these political costs while continuing to expand exports.

2. Structural Context

Political Structure: Central-Local Relations and Industrial Policy Inertia

China's overproduction problem stems not from a lack of central government control, but from the structural characteristics of central-local relations. Although the Ministry of Industry and Information Technology announced in the 15th Five-Year Plan that it would introduce a 'capacity warning mechanism' to control excessive competition, or neijuan (內卷), in the EV industry, the pace at which leading companies like BYD are raising their overseas sales targets is outstripping policy implementation [7]. This reveals a lag in policy execution, where the central government recognizes the problem but is unable to immediately curb the incentives for local governments and state-owned or private enterprises to expand exports.

Economic Structure: The Structural Gap Between Production Capacity and Domestic Demand

The power grid itself is acting as a physical bottleneck in this gap. With renewable energy generation facilities exceeding grid capacity, China's response is not to adjust domestic demand but to export the grid technology itself. The plan to make its ultra-high voltage (UHV) grid the world standard and "supply its domestically produced green electricity to the world" [11] can be interpreted as an attempt to transform a domestic overproduction problem into foreign infrastructure dependency. If successful, this would shift China's status from an exporter of power generation equipment to a setter of grid standards. It is a path to extending the market dominance already seen in batteries and EVs to the higher level of power grid infrastructure.

This expansion is manifesting along two simultaneous axes in the realms of trade and economic security. One is market share competition in finished products. In non-Chinese markets, the combined battery market share of CATL and BYD reached 44.6%, while the share of the three South Korean companies fell by 8.9% [9]. The other is competition over infrastructure standards. Once a standard is established, the high cost of replacement creates a much more long-term dependency effect than market share competition. A situation where a country's core infrastructure standard—the power grid, not a railway system like Deutsche Bahn—becomes dependent on foreign technology has qualitatively different security implications than importing individual products.

Security Structure: A Sub-Front in the U.S.-China Tech Hegemony Competition

The United States has already entered the stage of redefining this structure as a security issue. The Trump administration issued an executive order broadly restricting Chinese-made grid equipment, which has caused delays or cancellations of renewable energy projects within the U.S. [13]. Even amid countervailing pressure from the surge in electricity demand from AI data centers, the U.S. is choosing to prioritize the exclusion of Chinese equipment [13]. This shows that the U.S.-China strategic competition is expanding its front lines beyond semiconductors and AI into the traditional infrastructure domain of the power grid.

Germany is following a similar path. It is preparing an economic security package that includes new tariffs on hybrid EVs, which can be read as a European-level defensive response to the spread of China's grid and EV technology [15]. China's state-run media outlet, the Global Times, has countered these German measures as an "attempt to externalize its own competitiveness problems" [15]. This contentious dynamic suggests that not only the U.S. but also the EU is individually preparing industrial and trade responses to China's standards expansion.

3. Historical Precedents and Comparison with Similar Cases

The current competition over power grid standards is a repetition of a pattern already seen in solar, EVs, and batteries. In the 2010s, China's subsidy-driven expansion of production capacity for solar modules set a precedent by driving many European and American manufacturers out of the market. This pattern was repeated in the EV and battery sectors in the early 2020s, and has now progressed to the point where CATL and BYD's share is approaching half of the non-Chinese market [9][12]. The sequential spread of this pattern to steel, chemicals, machinery, and industrial robots has been confirmed in previous EAI analysis [10].

However, the export of power grid standards differs critically from this pattern. The previous cases were competitions for market share in finished products and components. Power grid standards represent a normative competition that defines the foundation of a country's energy system. A similar precedent can be found in the competition over 5G standards in the telecommunications sector. The dynamic where the U.S. demanded that its allies exclude Huawei's 5G equipment, which had been widely adopted in many developing countries, on security grounds could be replayed in the power grid domain. However, while the core logic for exclusion in the 5G case was security and surveillance concerns, the logic for power grids is expected to center on physical vulnerabilities related to energy supply stability and control over the grid.

4. Key Variables Shaping Future Developments

The first variable is the choices made by developing countries. Emerging economies in Africa, Southeast Asia, and elsewhere have an urgent need for low-cost grid modernization. African regional media have assessed battery storage technology as a key tool for grid stabilization [5], making it highly likely that China's low-cost UHV technology proposals will have significant appeal for developing countries with limited financial resources. In this case, even if Chinese standards are excluded from developed markets, a bypass route could open up for them to achieve de facto international standard status through the Global South.

The second variable is the speed and coherence of the U.S. and EU responses. U.S. regulations on grid equipment are conflicting with the surge in electricity demand from AI [13]. If delays in renewable energy projects become prolonged, the tension between security logic and industrial reality could create pressure to roll back policies. In the EU, Germany is at the stage of preparing its own response package [15]; whether this evolves into a unified set of rules for all 27 member states or remains a collection of individual national responses will determine its effectiveness.

The third variable is the subsequent competitive landscape in the ESS market. The surge in demand for power storage, driven by the expansion of data centers and AI infrastructure, is projected to grow the market more than fivefold, from 353 GWh in 2024 to 1,870 GWh in 2035 [2]. With CATL, CALB, and EVE already establishing a lead in this market [2], if Chinese firms come to dominate ESS following their success in solar, EVs, batteries, and grids, the same dependency structure will be replicated across all layers of clean energy and AI infrastructure. Whether this trend is halted or solidified depends on whether the U.S. and EU enact trade measures related to grids and ESS within the next two to three years.