The economic and financial colossus of Shanghai is set to face winter power demand peaks with greater ease and at lower costs, as the first phase of Tesla's grid-side energy storage project is scheduled to begin operating within the year, according to a senior executive with the US electric vehicle maker.

With a total investment of around 4 billion yuan ($558.58 million), the project represents Tesla's first grid-side energy storage station on the Chinese mainland. Using its Megapack energy-storage batteries, the electric vehicle manufacturer looks to tap into China's promising energy storage market by connecting its facility with the country's power grid.

Situated in the Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, the first phase of the project is projected to come into operation this year, which will provide about 300 megawatt-hours of energy storage capacity upon its completion, helping stabilize the city's electricity supply during peak demand periods in summer and winter, said Dong Kun, general manager of Tesla's energy business in China.

"Once launched, the project will participate in electricity spot trading, helping balance peak and off-peak power demand in local grids and enhance overall grid stability," Dong said.

The Shanghai megalopolis faces recurring pressure on its power grid during extreme temperatures. Dong said the city spends an extra 20 billion yuan annually to ensure stable electricity supply during peak seasons. The introduction of large-scale storage capacity is expected to significantly reduce this cost and enhance the city's power supply reliability.

The project is being implemented by a subsidiary of China Kangfu International Leasing Co Ltd, in collaboration with Tesla.

"The decision of collaborating with Tesla is based on its leading position in global energy storage, the localization strengths of Tesla's energy storage Megafactory in Shanghai, the technological advancement and reliability of Megapack, as well as the synergy with Tesla's energy ecology," Li Jianhua, president of China Kangfu, was quoted as saying during the signing ceremony by ThePaper.cn.

"With the implementation of the project, China Kangfu and Tesla will further deepen their cooperation in energy business both at home and abroad, so as to jointly promote the development of a sustainable energy sector," Li said.

Lin-gang Special Area vows to build an innovative powerhouse and demonstration base for energy storage with global competitiveness with a focus on green, low carbon and future energy resources, according to a plan issued by the special area's administrative committee last year.

According to its blueprint, Lingang Special Area will see its energy storage market scale reach 50 billion yuan in 2025, and further expand to 100 billion yuan by 2030.

Tesla's flagship Megapack energy storage units are designed to provide flexible and large-scale support to electric grids. Since the first Megapack rolled off the production line on Feb 11, several hundred units have already been delivered to countries and regions across Europe and Oceania.

The Shanghai Megafactory is Tesla's first such project outside the United States. Construction began on May 23, 2024, and the factory was officially completed and commissioned on Dec 26. The entire process took just seven months, breaking the "Tesla Speed" record set by the Shanghai Gigafactory in 2019, with construction, production and deliveries all taking place within the same year.