(Yicai) June 23 -- Chinese clean energy company Kangfu International Leasing is joining forces with US electric vehicle giant Tesla to construct an energy storage power plant in Shanghai costing CNY4 billion (USD556.6 million). This marks Tesla's first major collaboration in China since the launch of its Shanghai Megapack factory earlier this year.

Kangfu subsidiary Kang'ao Energy Technology will build a gigawatt-hour-scale standalone energy storage power station that connects to the grid in the Lingang New Area of the Shanghai Free Trade Zone using Megapack batteries produced by Tesla’s Shanghai factory, the Lingang New Area Administrative Committee said on June 20, citing the cooperation agreement penned that day.

Once up and running, the facility will help balance electricity demand, especially during the city’s peak usage in winter and summer, said Dong Kun, general manager of Tesla China's energy business. It will also trade electricity in the local power market and help promote the integration of renewable energy into the grid.

Tesla's Shanghai Megapack factory, which is also located in the Lingang New Area, came online in February. Costing USD200 million, it is the Austin-based firm’s second plant in the city. It has an annual output of 10,000 Megapack batteries with a total storage capacity of 40 gigawatt-hours.

Looking ahead, Beijing-based Kangfu and Tesla intend to deepen their ties in energy collaboration even further. They plan to attract high-value-added supporting industries to the Lingang New Area to form a complete demonstration project for the manufacturing and application of new power systems, Kangfu said. The aim is to make Lingang a global hub for the energy storage industry.

While Tesla’s worldwide sales of electric vehicles have been struggling since last year, its energy storage business has emerged as a new growth driver. In the first quarter, the company’s battery installations surged two-and-a-half-fold year on year to 10.4 gigawatt hours, according to Tesla’s latest financial report. And last year they more than doubled year on year to 31.4 GWh.

Editor: Kim Taylor