By Michael Martina
WASHINGTON (Reuters) -U.S. utility company Duke Energy (NYSE:DUK) said on Wednesday it had disconnected large-scale batteries made by Chinese company CATL from North Carolina Marine Corps base Camp Lejeune after lawmakers and experts raised concerns about the battery supplier's close links to China's ruling Communist Party.
A number of Republican and Democratic lawmakers have sounded the alarm over potential security threats posed by Chinese storage batteries, arguing the U.S. risks building a critical dependency on its top rival for the devices that may have cyber vulnerabilities and put energy grids at risk.
Duke Energy used the CATL batteries in its facility leased at Camp Lejeune, according to an April press release. That spurred criticism from a group of more than two dozen Republican lawmakers led by Senator Marco Rubio, who last week wrote Secretary of Defense Lloyd Austin asking him to "immediately reverse" the installation of the batteries.
Duke Energy has since met with lawmakers, including North Carolina Representative Greg Murphy, about the issue.
"Some concerns about this project have been raised, and, as a result, Duke Energy disconnected these batteries as we work to address these questions," the company told Reuters in a statement.
But it added that the system was designed with "security in mind" and that the batteries "were not connected in any way to Camp Lejeune's network or other systems."
The company did not say when the batteries were disconnected or how long they would remain offline.
CATL told Reuters in a statement that accusations about its batteries posing espionage threats were "false and misleading" and that its products had passed security reviews by U.S. authorities.
Its energy storage products sold to the U.S. contained only "passive" devices, which were not equipped with communication interfaces, the company said.
Liu Pengyu, spokesperson for China's embassy in Washington, said China "always opposes the U.S. side politicizing trade and investment cooperation."
The U.S. Department of Defense did not respond immediately to a request for comment.
CONCERNS OVER CHINESE BATTERIES
The deployment of such utility-scale battery energy storage systems (BESS) is increasing rapidly in the U.S. as sources of renewable energy come online. Much of that capacity will likely come from Chinese suppliers, which are leaders in the technology and stand to benefit from U.S. renewable energy tax credits.
Democratic Senators Mark Warner and Joe Manchin in November urged the Department of Energy to prioritize U.S.-developed energy storage technologies in the face of China's "near-monopoly" over battery production, which they said poses "substantial defense and economic security vulnerabilities."
"Disconnecting systems supported by the Chinese Communist Party is common sense, especially when it comes to securing our military bases," Rubio told Reuters following Duke Energy's statement.
Such systems require frequent remote operation and telecommunications equipment connected to the batteries could be vulnerable to hacking attempts, say experts.
An October 2022 DOE report highlighted risks associated with grid-connected battery storage systems, warning that attackers have shifted focus to suppliers of hardware and software, seeking to "add backdoor capabilities that permit unauthorized access and control."
In worst case scenarios, experts say coordinated attacks could knock out energy grids. The U.S. intelligence community's 2023 threat assessment said China is likely capable of launching cyberattacks that would disrupt critical infrastructure services within the U.S. intended to induce societal panic and interfere with the deployment of U.S. forces in a period of conflict.
Craig Singleton, a China expert at the Foundation for Defense of Democracies, warned in an October report that CATL's founder and top shareholder, Zeng Yuqun, is closely tied to China's ruling Communist Party, and serves as a vice chairman of the All-China Federation of Industry and Commerce, a trade group under the party's United Front Work Department, which carries out Beijing's agenda overseas.
"The company's corporate connections and leadership links to China's party-state serve as structured channels through which Beijing can exert influence and control over the company's personnel, operations, and data," Singleton said.
CATL said it met its disclosure obligations as a publicly traded company and noted its investors included Western firms such as JP Morgan Chase (NYSE:JPM) and UBS.
Republican Representative Austin Scott has sought language in the sweeping 2024 annual defense spending bill that would bar the Pentagon from purchasing or using battery technology made by CATL and other Chinese suppliers.
CATL has announced deals to supply batteries for commercial energy projects around the country, including in Texas and Nevada.
Mike Casey, director of the National Counterintelligence and Security Center (NCSC), which coordinates with the U.S. private sector over security threats, said companies should think twice before installing Chinese batteries.
"We encourage power companies interested in using these industrial battery energy storage systems from China to think beyond the short-term cost savings they may realize and consider the potential long-term vulnerabilities and how to mitigate them – which could end up being costlier," Casey told Reuters.