Investment trends in grid-scale battery storage

By Danyel Desa

The deployment of renewables has reached the point where balancing the electric grid requires shifting the supply of intermittent energy sources and demand on a MW-to-GW scale. Continued growth in the renewables market depends heavily on the widespread implementation of effective energy storage technologies.

The widespread use of grid storage can save utilities and their customers large amounts of money by evening out demand across time. Storage allows power plants’ baseline generating capacity to be substantially lower than that required to accommodate demand peaks.

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Thus, only when augmented by affordable grid storage can renewable technologies such as solar and wind successfully compete with fossil fuel-based energy production. Looking back at data on investments in energy storage, we found a few trends which (in conjunction with the fallout from COVID-19) are setting the stage for energy storage’s near-term and long-term growth.

Per the IEA’s World Energy Investment 2021 report, energy storage was already losing momentum at the beginning of the COVID‑19 crisis. For the first time in nearly a decade, annual installations of energy storage systems fell year-over-year in 2019. The IEA cited wavering policy support in key markets and uncertainties around battery safety as headwinds to growth, with grid-scale installations falling by 20%.

The 2020 crisis was expected to compound these effects, owing to battery manufacturers’ particularly complex and cross-border supply chains from cells, to modules, to packs and installers.

However, the IEA reported that despite the pandemic, investment in battery storage surged by almost 40% year-over-year in 2020, to USD 5.5 billion. Spending on grid-scale batteries rose by more than 60%, driven by the push for investments in renewables.

The costs of battery storage systems reportedly continued to reduce substantially, by an average of 20%. This also helped drive the impressive resilience of grid-scale batteries, especially in the United States and China – which installed over 1 GW – followed by Korea and Europe.

Given the strong momentum of the sector and the big pipeline of upcoming projects, the IEA predicts that this trend is set to continue in 2021. Research firm IHS Markit has predicted that over 10 GW of new energy storage will be deployed during 2021, more than double the estimated 4.5 GW of deployments seen in 2020.

Source: IEA, IHS Markit

The IEA, in its World Energy Investment 2021 report claimed that although clean energy startups continued to attract high levels of investment through the COVID-19 crisis, the market lost momentum in the first half of 2020. Early-stage Venture Capital (VC) investments decreased marginally in 2020 relative to 2019.

Nonetheless, investments in clean energy startups recovered in the second half of 2020 and continued strongly into the first quarter of 2021, for which data points indicate a record quarter for early-stage energy VC funding.

According to a recently published report by Mercom Capital, VC funding (including private equity and corporate venture capital) raised by battery storage companies in Q1 2021 came to USD 994 million compared to $351 million in Q4 2020. Year-over-year funding for Q1 2021 was more than five times greater than Q1 2020’s USD 164 million.

Source: Mercom Capital

While these sums appear far lower than those spent on energy R&D and deployments by governments and companies, this private capital plays a vital role. It enables the market creation and scale-up of technologies that have a clear near-term value proposition, especially those that do not require high levels of upfront development and capital.

Moreover, the rebound in early-stage investments demonstrates a larger trend – investors are increasingly convinced that energy transitions are happening, with the proliferation of renewable energy companies going public through special-purpose acquisition companies (SPACs) demonstrating a growing appetite for start-ups.

The IEA suggests that this shift towards increased investor appetite for providing risk capital to early-stage energy technology companies is a significant development. However, it cautions that the impact of this shift depends on the pace at which the supply of high-potential, scalable ideas from research can rise, especially from publicly funded labs and projects.

As energy storage becomes truly grid-scale, deployments around the globe are getting supersized. As previously highlighted, in the U.S., Florida Power & Light (FPL) recently received its first battery unit installations for its massive 400 MW/900 MWh project. Additionally, Connecticut Governor Lamont recently signed a new law that will require the state to deploy 1 GW of energy storage by 2030 with milestone requirements every three years. Finally, the Southeast Asian Clean Energy Facility (SEACEF) recently announced an investment in a 500 MWp floating solar and storage project in Vietnam, which is to include up to 200 MWh of battery storage capacity.

This indicates that grid-scale storage installations are on the magnitude of other infrastructure projects and will require deep-pocketed funding beyond early-stage investors. The U.S. Department of Energy (DOE), in its recently published Energy Storage Grand Challenge: Energy Storage Market Report, projected that global grid-storage installations would grow from about 10 GWh in 2019 to almost 160 GWh in 2030.

Per Mercom Capital, total corporate funding (including VC, Debt, and Public Market Financing) in Battery Energy Storage came to USD 4.7 billion in Q1 2021, compared to USD 3.1 billion in Q4 2020 and USD 244 million in Q1 2020. This is yet another sign that corporations and investors are increasingly including clean energy (especially battery storage) exposure in their portfolios. We think that institutional investors and capital markets will play a significant role in driving energy storage development going forward.

Even with the pandemic seemingly poised to linger on into 2021 or beyond, the fundamental imperatives impacting the world’s approach to energy production this century have not changed. The global necessity to decarbonize the electric grid will likely continue to drive technological advances as well as Corporate and VC funding initiatives in the grid storage space for the foreseeable future.

Danyel Desa is an Energy Analyst at Tata Industries, the incubation arm of the Indian multinational conglomerate Tata Group. His work involves assisting Tata Industries’ portfolio companies in achieving their objectives, as well as exploring and appraising investment opportunities in the renewable energy domain, spanning energy storage, hydrogen and fuel cells, electric vehicles and biofuels.

Prior to his time with the Tata Group, he worked as an Equity Research Analyst at JP Morgan, covering the North American Oil and Gas Services sector, where he wrote investment research reports for the firm’s clients. He is passionate about the energy transition, having researched and worked on both the Oil and Gas and Renewables spaces.

He received his education at the Indian Institute of Technology, Bombay with a Dual Degree (Bachelor’s and Master’s in Technology) in Electrical Engineering. He is passionate about writing and an avid researcher, continually educating himself on emerging trends and technologies in the renewables domain.