Author: Nian Xiaoman, Editor: Chao Yi
A few days ago, a policy announcement from the United States triggered a century-level tsunami in the capital markets of China's new energy sector, particularly in energy storage and inverters.
On August 26, local time, U.S. President Trump signed Executive Order 14420. Citing national security, the order declares a national emergency and prohibits the procurement, importation, or installation of certain foreign-manufactured bulk-power system equipment and related software that may pose cybersecurity or operational risks in the United States. It also authorizes the federal government (particularly the Department of Energy) to conduct extensive security reviews, impose restrictions, and issue bans on foreign-produced power equipment to decouple the U.S. power system supply chain from "foreign adversaries" such as China. This marks the second time the U.S. has escalated controls on foreign power equipment citing grid security, following Executive Order 13920 in 2020, and the first time battery energy storage systems (BESS) have been formally included in the scope of national-level grid security reviews.
The White House specifically pointed out in its statement that foreign-manufactured equipment may contain "digital backdoors," enabling foreign governments to remotely access U.S. grid equipment.
It should be noted that even before this policy, the market was already concerned that a series of isolated incidents, such as the revolving door at BYD and the compliance penalties faced by Semcorp's factory in Hungary, could be characterized by Europe as "common industry issues." This could serve as a pretext for Europe to impose intensive and stringent regulatory penalties on the entire Chinese-funded energy storage supply chain, which would undoubtedly have a profound impact on, or even shock, the over CNY 100 billion investment layout of Chinese enterprises. (See also: How CNY 220 Billion Investment in China's Energy Storage Can Weather the Storm of European Political Games | Exclusive).
Now, this policy shift in the U.S. has undoubtedly further increased the strategic challenges, and even existential risks, for Chinese-funded energy storage enterprises in their globalization efforts.
Perhaps influenced by this sentiment, on August 27, Sungrow (300274), a leading inverter and energy storage system integrator, opened significantly lower, with its intraday drop exceeding 14% at one point (closing at CNY 98.84 per share for the day, a drop of 12.24%). Since then, Sungrow's stock price has fallen for five consecutive days. In just five trading days, its stock price dropped by 23.28%, wiping out approximately CNY 54.4 billion in total market capitalization, while the Shanghai Composite Index rose by 0.73% during the same period.
According to statistics from the 24Chao Industry Research Institute (TTIR), during these five trading days (August 27 to September 2), the total market capitalization of China's listed energy storage companies cumulatively evaporated by CNY 317.5 billion.
Looking ahead, globally, more Chinese-funded energy storage projects, and even major projects across the entire new energy sector, may face stringent compliance reviews.
In fact, against the backdrop of accelerating global energy transition, the new energy industry worldwide is shifting from a new cycle of "scale competition" to "compliance gamesmanship." This article aims to comprehensively dissect Executive Order 14420 and analyze the root causes of U.S. policy changes, discussing with readers "the potential future policy trends and industrial competition shifts in the United States." The intention is to spark discussion; it is for reference only, and readers are welcome to supplement, correct, or even criticize it.
Dissecting the 7 Key Points of Executive Order 14420
So, what exactly are the other core points of Executive Order 14420 signed by the U.S. President? The author found the original text of this executive order on the official White House website and conducted an in-depth interpretation of its content. The White House described this move as addressing two intertwined issues: first, the potential existence of digital backdoors and hidden access privileges in foreign equipment, and second, the risk of supply chain disruptions.
Given the surge in power loads in U.S. advanced manufacturing, data centers, AI (Artificial Intelligence), and defense production, the safety and reliability of grid infrastructure have been elevated to the height of strategic security. Based on our dissection, the specific core points of Executive Order 14420 are as follows:
1. Declaring a National Emergency. It determines that foreign-supplied bulk-power system equipment (including energy storage, inverters, transformers, control systems, etc.) poses an "unusual and extraordinary threat" to the national security, foreign policy, and economy of the United States. This threat exists both in individual transactions and when transactions are considered as a whole. To address this threat, additional measures are required to protect the security, integrity, and reliability of bulk-power systems and electrical equipment used in the United States.
2. Authorizing the Prohibition or Restriction of Relevant Transactions. Following coordination and consultation with secretaries of multiple departments, the Secretary of Energy may prohibit any person or property under U.S. jurisdiction from acquiring, importing, transferring, or installing foreign-produced bulk-power system equipment, provided that the transaction is determined to involve a "foreign adversary" and poses a national security risk, or an undue and catastrophic risk to the security or resilience of U.S. critical infrastructure or the U.S. economy.
3. Broad Scope of Equipment, Explicitly Including Energy Storage and Grid Control Equipment. The equipment listed within the scope of restrictions includes: battery energy storage systems, grid-tied inverters, uninterruptible power supplies, substation transformers, high-voltage circuit breakers, industrial control systems, remote terminal units, protective relays, etc.
4. Broad Definition of "Foreign Adversaries." This includes not only countries subject to U.S. sanctions or arms embargoes but also countries determined by the Secretary of Energy and others to be engaged in activities detrimental to U.S. security, as well as any entities owned by, controlled by, or subject to their jurisdiction. Chinese enterprises, especially those perceived to be affiliated with the Chinese government, are highly susceptible to being included.
5. Existing Equipment Can Also Be Disposed Of. For foreign equipment installed or acquired before the issuance of the order, the Secretary of Energy may require its identification, isolation, monitoring, disconnection, replacement, or removal, effectively imposing "retroactive" restrictions on existing assets.
6. Promoting "Buy American" in Federal Procurement. It requires amendments to the Federal Acquisition Regulation to prioritize American-made products in energy infrastructure procurement and to fully assess national security risks.
7. Establishing a Licensing and Pre-qualification Mechanism, but with the Initiative on the U.S. Side. It allows the Secretary of Energy to establish a pre-qualified list or issue licenses, but the standards are unilaterally led by the U.S. side, and the actual outcome may result in the overall exclusion of Chinese enterprises.
In summary, Executive Order 14420 establishes a supply chain review and exclusion mechanism for power equipment, led by the Department of Energy and justified by "national security." The core objective is to prevent foreign-controlled power equipment (especially energy storage, inverters, and grid control systems) from countries like China from entering the U.S. bulk-power system and to promote the localization of the supply chain.
Executive Order 14420 also designates foreign-supplied bulk-power system equipment as an "unusual and extraordinary threat" and authorizes the U.S. Secretary of Energy and other agencies to implement measures such as transaction prohibitions, reviews, imposing conditions, isolation, and replacement for foreign-produced power equipment. Among these, battery energy storage systems, grid-tied inverters, uninterruptible power supplies, industrial control systems, and substation equipment are explicitly included in the scope of "bulk-power system equipment." Furthermore, the broad definition of "foreign adversaries" means that Chinese enterprises, especially those perceived to have ownership, control, jurisdiction, or direction by the Chinese government, are highly likely to be targeted for key reviews or restrictions.
5 Potential Risks and Challenges for Chinese-Funded Enterprises
On August 29, the investor communication minutes disclosed by Sungrow showed that the company's preliminary judgment is that, literally understood, the current coverage of U.S. Executive Order 14420 is transmission system equipment of 69kV and above, while local distribution equipment is not within the scope. Distributed solar and energy storage projects in the U.S. are connected at 13.8kV, and large-scale solar and energy storage projects are connected at 34.5kV and then stepped up to 69kV and above; it is currently unclear from which node the restrictions will begin. In the long run, against the backdrop of geopolitical fluctuations, the U.S. business volume will gradually shrink. The company will undergo a transformation, strengthen innovation, tilt towards other regional markets, and focus on channel business, appropriately scaling back U.S. business to keep risks controllable.
In fact, our analysis suggests that this executive order may pose a systemic, structural, and traceable shock to Chinese energy storage enterprises. The core danger lies not in any specific ban, but in the combination of "national emergency + broad definitions + ministerial discretion + retroactive application" to comprehensively and irreversibly exclude Chinese energy storage equipment from the U.S. market, thereby generating a global demonstration effect.
The most urgent risk faced by enterprises already operating in the U.S. is the nullification of signed contracts and the requirement to replace already operational equipment, rather than merely failing to secure new orders in the future.
Specifically, we analyze that Executive Order 14420 may have five major impacts, and even potential risks, for Chinese-funded enterprises:
1. Market Access Impact: New Projects Hindered, Existing Assets Face Retroactive Risks. In the short term, market access for Chinese equipment in new large-scale energy storage projects and high-voltage transmission and transformation projects in the U.S. will largely stall, entering a period of policy observation before the Department of Energy issues detailed rules within 120 days. Projects that have won bids but are yet to be delivered may face contract default risks, and project owners may terminate or alter contracts due to security review concerns.
Even more alarming is the retroactive risk for existing assets. For Chinese equipment already connected to the U.S. grid, the U.S. side retains the right to isolate, disconnect, replace, or even dismantle it. This means that enterprises will not only lose the new market but may also face forced withdrawal and compensation for losses on existing assets.
In terms of market access, access for relevant Chinese equipment in U.S. grid-side, large-scale energy storage, and critical infrastructure projects may be prohibited or subject to harsh conditions.
2. Financial and Valuation Impact: Stock Price Volatility and Downgraded Profit Expectations. The policy shock has rapidly transmitted to the capital markets. On August 27, the photovoltaic and energy storage sectors in China's A-share market collectively plunged, with Sungrow experiencing a maximum intraday drop of 14.18%, followed by declines in GoodWe and Ginlong Technologies. The sector's market capitalization evaporated by over CNY 100 billion in a single day.
At the profitability level, the U.S. market typically offers higher profit margins. If the market is completely closed, related enterprises will not only see slowed revenue growth but also face downward pressure on overall gross profit margins. Multiple brokerages have already downgraded the 2026-2027 profit forecasts for leading enterprises such as Sungrow.
3. Impact on Existing Projects: Facing Risks of Monitoring, Isolation, Replacement, or Removal. Regarding existing projects, installed equipment may be subject to monitoring, isolation, replacement, or removal, leading to project losses. Section 2(b) of Executive Order 14420 stipulates that for foreign-manufactured equipment acquired or installed before the order's issuance, the Secretary of Energy may impose conditions, including requiring identification, isolation, monitoring, disconnection, replacement, or removal. This means that Chinese energy storage equipment already operating in the U.S., even under existing contracts, may be required to install monitoring systems, restrict usage, or even be forcibly replaced, resulting in project asset impairment, contract defaults, operational disruptions, and subsequent litigation risks.
4. Supply Chain Impact: Full-Chain Review Forcing Supply Chain Restructuring. Unlike previous tariffs targeting only final products, this ban adopts a full-chain penetrating review model, covering every link from components, software, technology licensing, to operation and maintenance services. Simple assembly in third countries will struggle to evade the review, as the U.S. side will trace back to the country of origin of key components and the attribution of actual control rights.
This means that the traditional model of Chinese enterprises "assembling in Southeast Asia/Mexico to bypass tariffs" faces the risk of becoming invalid. If an enterprise is held or actually controlled by a Chinese entity, even if its production base is located overseas, it may still be identified as a "foreign entity of concern" and included in the scope of restrictions.
Therefore, the supply chain needs to be restructured. U.S. developers may proactively demand a "China-free" supply chain, forcing Chinese enterprises to set up factories in third countries or cooperate with U.S. companies, yet it may still be difficult to completely evade the restrictions. In terms of federal procurement, federally funded projects will prioritize excluding Chinese equipment, subsequently affecting state and utility projects that rely on federal funding.
5. Long-term Strategic Impact: Overseas Expansion Models and Global Layout Face Adjustments. The overseas expansion strategies of Chinese power equipment enterprises generally regard the U.S. as a benchmark for high-end markets, verifying their technological strength and brand value through the U.S. market before radiating to other global markets. The ban breaks this growth path, forcing enterprises to re-evaluate the strategic value of the U.S. market.
At the same time, the risk of coordinated U.S.-European policies is rising. The European Union has simultaneously launched security reviews for grid equipment. If a unified transatlantic regulatory framework is formed, Chinese enterprises will face broader market access barriers, and the global market space will be continuously compressed. Under such circumstances, U.S. customers may be forced to terminate contracts, exposing Chinese-funded enterprises to default and litigation risks.
The following is a list of Chinese-funded energy storage enterprises that may be affected, or even shocked, by the new policy, for readers' reference only.
4 Major Response Strategies for Chinese Enterprises in Their Globalization Journey
Executive Order 14420 marks a substantive step by the United States in the "de-Chinization" of the grid equipment supply chain. Chinese power equipment enterprises, especially those in the fields of transformers, grid automation, smart meters, energy storage batteries, and power electronics, are facing multiple pressures from the closure of U.S. market access, supply chain traceability, the transmission of security reviews, and allied coordination.
In the short term, enterprises should take compliance as the bottom line to avoid triggering harsher sanctions due to improper transactions; in the medium term, they should reduce geopolitical exposure through localization in third countries and supply chain restructuring; in the long term, they should promote secure and trustworthy technology certifications, participation in international standards, and the construction of non-U.S. market systems to reduce reliance on the single U.S. market.
We recommend that enterprises incorporate "U.S. market risks" into their normalized strategic risk management framework, with the board of directors coordinating compliance, legal, supply chain, R&D, and overseas business departments for a collaborative response. For enterprises highly dependent on the U.S. market, business continuity plans should be initiated as soon as possible to evaluate alternative markets and asset restructuring plans. Through analysis, the author has summarized the following response strategies for further research and in-depth discussion:
1. At the Compliance Level: Proactively Adapt to Regulatory Requirements and Establish a Full-Process Compliance System. This includes forward-looking compliance reviews: initiating security and compliance assessments during the project quotation and contract negotiation stages, covering dimensions such as product country of origin, key component sources, intellectual property ownership, and O&M control rights, to avoid passive defaults after signing. Hire local U.S. compliance law firms to establish a normalized compliance consulting mechanism.
Contract risk isolation: Add national security review exemption clauses to supply contracts, clearly defining the division of responsibilities and loss-sharing mechanisms in cases of project suspension, cancellation, or dismantling caused by policy changes, and setting a cap on compensation liabilities. Add a "compliance change right" clause, allowing enterprises to adjust product configurations according to regulatory requirements without constituting a breach of contract.
Actively apply for exemptions: Pay attention to the exemption mechanisms in the detailed implementation rules of the Department of Energy. For products and projects that do not involve core control functions and have controllable security risks, proactively submit security assessment reports to apply for case-by-case exemptions. Entrust authoritative third-party institutions in the U.S. to conduct cybersecurity certifications and obtain security endorsements.
Establish a compliance ledger: Conduct a comprehensive inventory of existing projects in the U.S. market, sorting out information such as equipment models, delivery times, connection voltage levels, and O&M models, and formulate tiered response plans. For high-risk existing projects, communicate with owners in advance regarding equipment replacement or security reinforcement plans to strive for reasonable compensation.
2. At the Market Level: Diversify Market Risks and Cultivate Non-U.S. Regional Markets. This includes accelerating market diversification: reducing reliance on the single U.S. market and increasing investment in emerging markets such as Europe, the Middle East, Southeast Asia, Latin America, and Africa. Chinese inverter enterprises already hold an 80% share in the European market and can further cultivate and expand into surrounding regions.
Focus on distribution and distributed scenarios: The ban only covers main grids of 69kV and above; local distribution facilities, commercial and industrial distributed energy storage, and residential energy storage are temporarily unrestricted. Enterprises can adjust their product structures and focus on expanding the distribution network side and distributed markets.
Expand downstream application scenarios: Extend to off-grid or dedicated network scenarios such as data centers, industrial parks, and island microgrids. These scenarios are usually not connected to the public main grid and are not subject to this ban. However, it should be noted that after the revision of the Federal Acquisition Regulation (FAR), federal-related procurement for critical infrastructure such as data centers may also be included in the controls.
3. At the Technical Level: Enhance Technical Transparency and Strengthen Cybersecurity Capabilities. This includes proactive technical disclosure: In response to cybersecurity concerns raised by the U.S. side, proactively disclose technical details such as product communication protocols, data interfaces, and access privileges, and entrust authoritative third-party institutions to conduct security certifications to eliminate "backdoor" concerns.
Cybersecurity capability building: Build a full-lifecycle cybersecurity management system for products in accordance with international standards, supporting functions such as secure boot, firmware encryption, access control, and security audits, to enhance the product's own security protection level.
Localized O&M architecture: Deploy remote O&M centers in the U.S. or third countries, with local teams responsible for O&M services, cutting off direct access from mainland China to on-grid equipment, and reducing the sensitivity of security reviews.
4. At the Strategic Level: Transition from Product Export to Technical Services and System Solutions. First, business model upgrade: Transition from simply selling equipment to a model of "technology licensing + brand authorization + local manufacturing," exporting technical standards and intellectual property, with local partners completing production, manufacturing, and market expansion, while Chinese enterprises obtain technical revenues.
System solution output: Focus on high-end service links such as design consulting, system integration, and smart energy management, outputting them as a whole package in the EPC+O model to enhance project added value and irreplaceability.
Standards and ecosystem construction: Actively participate in the formulation of international standards, promote the internationalization of Chinese technical standards, and jointly build an open and compatible industrial ecosystem with global partners to hedge against the policy barriers of a single country.
Government and industry coordination. Express concerns about the U.S. unilateral executive order through channels such as China's Ministry of Commerce, Ministry of Foreign Affairs, and National Energy Administration, and assess whether it violates the WTO's non-discrimination principle and international investment rules. Utilize industry organizations such as the China Chamber of Commerce for Import and Export of Machinery and Electronic Products and the China Electricity Council to uniformly collect information on enterprise damages, conduct external negotiations, and guide public opinion. Promote the signing of mutual recognition agreements for grid equipment and security standard cooperation agreements with countries along the "Belt and Road" to form a non-U.S. market standard system. Within the frameworks of RCEP, the Shanghai Cooperation Organization, BRICS, etc., promote the establishment of an independent security assessment mechanism for the power equipment supply chain.
Executive Order 14420 is another precise strike by the United States against China's new energy and power equipment industries in the name of national security, marking a new stage in the game between China and the U.S. in the field of energy infrastructure. The scope of the ban has expanded from traditional transmission and transformation equipment to core new energy equipment such as energy storage and inverters, and from hardware products to the entire chain of software and O&M services. The intensity and breadth of control have exceeded expectations.
In the short term, Chinese inverter, energy storage, and transformer enterprises deeply engaged in the U.S. market will face clear market shocks, with both performance and valuations facing adjustment pressures. However, in the medium to long term, the ban will also force Chinese enterprises to accelerate the optimization of their global layout, enhance compliance capabilities and technical soft power, and promote the transformation of the industry from scale expansion to high-quality development.
Chinese enterprises should abandon the fluke mentality, elevate compliant operations to a strategic height, diversify risks through diversified markets, cross barriers through localized layouts, and build core competitiveness through technological innovation to achieve sustainable development in the complex international geopolitical environment. At the same time, industry associations and government levels should also strengthen coordinated responses, safeguard the legitimate rights and interests of enterprises through channels such as bilateral consultations and the WTO dispute settlement mechanism, and create a fairer international environment for the industry's overseas expansion.