Redwood Energy positions second-life BESS as ‘essential infrastructure’ for US data centre load growth, domestic manufacturing needs

The timing responds to urgent market needs: data centres may use up to 12% of US electricity by 2028, according to the US Department of Energy (DOE), prompting hyperscalers and AI companies to seek faster, cheaper domestic energy solutions.

Additionally, tariffs and foreign entity of concern (FEOC) restrictions have added more fuel to the fire in the race to build a robust domestic energy storage supply line.

From recycling to repurposing

In June 2025, Redwood introduced its energy storage division, Redwood Energy, capitalising on its status as North America’s top lithium-ion (Li-ion) battery recycler.

Over the last 18 months, it has observed that the incoming EV battery packs were of better quality than expected.

“Up until about a year or a year and a half ago, the majority of the feedstock we were receiving was actually cell manufacturing scrap,” explained McConnell. “That started to change, where we were getting more and more full EV battery packs, and not only were we getting more of them, but they were actually of higher quality than we were initially expecting them to come back at.”

Instead of instantly dismantling each battery pack into raw materials, Redwood identified an opportunity to maximise value by first using packs with significant remaining capacity for stationary storage, and then recycling them once they reach true end-of-life.

The company now has multiple gigawatt-hours (GWh) of inventory already approved for use in battery energy storage systems (BESS), with plans to add substantially more over the next year. McConnell indicated the company is targeting GWh-scale deployments in the coming years across data centres, renewable energy projects, industrial applications, and utility-scale installations.

The pack manager

Redwood retains the original enclosures for the packs and links them using a proprietary technology called the Pack Manager.

“We’re taking electric vehicle battery packs that were designed for a very harsh use case, high charge/discharge, mobile, water ingress, and we’re putting them into a much gentler use case,” McConnell said. The Pack Manager allows Redwood to integrate battery packs across different chemistries, capacities, and voltage classes by communicating with each pack’s onboard battery management system.

This chemistry-agnostic solution helps Redwood manage a diverse range of battery types, brands, and degradation levels.

Redwood has created a battery pack library, supported by filed patents, that allows the system to adapt as the composition of end-of-life EV batteries shifts from mainly nickel manganese cobalt (NMC) chemistry to a higher proportion of lithium iron phosphate (LFP) over time.

The company arranges the flat, skateboard-style EV battery packs vertically, spacing them out and connecting two packs to each Pack Manager unit. By not disassembling the packs and using lower-cost materials, Redwood claims it can provide systems at about half the installed cost compared to domestic alternatives.

Proven at scale

In June 2025, the company brought online a 12MW/63MWh BESS for AI infrastructure firm Crusoe; at the time, it was the largest deployment of second-life batteries globally and the largest microgrid in North America. The system has been operating and generating revenue since launch.

“We’re really excited about it,” McConnell said. “Really exciting to see the technology operate at scale.”

While data centres represent the primary and urgent demand, Redwood envisions applications across various segments. The company focuses on four-to-eight-hour systems, where its cost advantage is most significant compared to traditional Li-ion options.

“We become even more competitive compared to a traditional containerised solution the longer duration you go,” McConnell noted. “We’re seeing maybe four, to eight hours being a really attractive window for us, and with the longer duration, closer to eight, we compete especially well.”

Beyond data centres, Redwood is engaging with renewable developers for co-location with solar and wind initiatives, working with regulated utilities on front-of-the-meter (FTM) applications, and collaborating with industrial clients aiming for peak shaving solutions.

EV battery supply

Redwood’s storage plans are based on the key assumption that enough high-quality EV batteries will re-enter the market to enable GWh-scale deployments. The company’s analysis indicates that this assumption is well-founded.

EV penetration has only become significant in recent years, with batteries usually remaining in first-life vehicles for over seven years. As these vehicles reach the end of their life or batteries are replaced under warranty, the amount returning to the market is projected to increase rapidly.

Redwood predicts that by 2030, up to 50% of the North American battery energy storage market could be supplied by repurposed EV batteries.

“We’re really just at the tip of the iceberg on this,” McConnell said. “The scale of the market is so large that it could happen quickly, and we’re really hopeful that it does.”

Importantly, this forecast remains valid even if EV adoption slows down due to the Trump administration’s removal of consumer tax credits. Most batteries expected in 2030 will have been installed in vehicles by 2023 or earlier, a period when adoption rates were higher.

“Even at 2023 penetration rates, which were much higher than 2025 and will be in subsequent years, the volume of EV battery packs coming back is massive,” McConnell explained. “Even without the growth rates that I think we all hoped for, you will see a pretty massive volume of EV battery packs coming back.”

Redwood’s feedstock currently consists of a blend of genuine second-life batteries and newer packs from warranty recalls or product obsolescence caused by fluctuating EV demand. The company anticipates that second-life batteries will become the majority over time as the market develops.

The inclusion of Google and Nvidia as investors indicates validation from two key players in AI infrastructure development. Both companies require significant computing power for training and deploying large language models and must develop solutions to accelerate deployment.

Redwood claims its systems offer several advantages for hyperscalers. The batteries are domestically sourced, avoiding tariff exposure and geopolitical supply chain risks while qualifying for federal tax credits. Lead times are shorter than imported alternatives, addressing the speed-to-power imperative. And the cost structure enables longer-duration applications that provide greater flexibility for load management.

“Our partnership with Crusoe is certainly exciting, but we also have Nvidia and Google as investors,” McConnell said. “We’re hoping that shows conviction around Redwood solutions for the broader AI compute space.”

The company frames its mission in terms of energy independence and domestic manufacturing. “As electricity demand surges—driven by AI, data centres, manufacturing and electrification—energy storage is no longer optional; it is essential infrastructure,” Redwood stated in announcing the funding.

That positioning aligns with broader policy trends favouring domestic supply chains and critical minerals independence, though the Trump administration’s stance on other renewable energy incentives remains less positive.

Headwinds in recycling

The storage pivot is happening as Redwood’s main recycling business experiences market pressures. Falling prices for new batteries and parts from China have reduced the value of recycled materials.

Li-Cycle, another prominent battery recycler, filed for bankruptcy in 2024 and was subsequently acquired by mining giant Glencore, though company-specific factors contributed to its collapse.

The broader challenge remains: when virgin materials from China undercut recycled alternatives on price, the economic case for domestic recycling weakens.

Redwood Energy is attempting to offer a hedge against these dynamics by generating an extra revenue stream from the same feedstock. Instead of competing only on recycled-material prices, the company can maximise value by deploying energy storage and later recycling the batteries at their actual end-of-life.

McConnell emphasised that Redwood’s focus for 2026 is to convert backlog into revenue while demonstrating improved unit economics. The company has a US$701.5 million backlog representing 2.8GWh, with US$240 million in fourth-quarter bookings across eight customers and nine projects.

“We’re talking about GWhs of deployments in the coming years, and we think we can play a really meaningful role in the overall BESS market,” she said.

It remains uncertain whether Redwood can reach that scale while keeping cost benefits and system performance. However, with Google and Nvidia supporting the initiative and data centres in need of reliable power solutions, the company may have the necessary capital and customer interest to test this hypothesis.

Energy Storage Summit USA will be held from 24-25 March 2026, in Dallas, TX. It features keynote speeches and panel discussions on topics like FEOC challenges, power demand forecasting, and managing the BESS supply chain. ESN Premium subscribers can get an exclusive discount on ticket prices. For complete information, visit the Energy Storage Summit USA website.