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Investment in energy storage jumped 55% in 2022 as funds shifted from private equity to public markets

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Dive Brief:

  • Corporate funding for energy storage grew 55% in 2022 to reach a record $26.4 billion, according to a report from Mercom Capital Group.

  • Lithium-ion technologies received the most funding in 2022. However, funding remains fairly dispersed across emerging battery technologies, suggesting markets are not completely convinced of lithium’s dominance, according to Mercom CEO Raj Prabhu.

  • Energy storage markets remain relatively immature; a handful of large deals can shift the center of funding activity from private capital to public markets, or from one technology to another.

Dive Insight:

Investor interest in energy storage is growing — and probably hasn’t yet peaked, according to Mercom Capital Group.

While overall corporate funding for energy storage increased to record levels in 2022, venture capital invested in energy storage declined by a little over one-third after hitting a record $8.8 billion in 2021. The inverse trends appear to be the result of a few large deals, such as a $10.7 billion IPO by battery manufacturer LG Energy, shifting funds from venture capital and private equity to public markets, according to Prabhu.

“Beyond that, the second, third and fourth quarters were steady,” Prabhu said. “These big deals are making a huge difference.”

Investors remain keenly interested in energy storage, even as funds move around. A record 28 acquisitions were completed in 2022 — a 400% increase over last year, according to Prabhu. The IRA and other new incentives for energy storage have likely piqued interest in energy storage startups on the market, Prabhu said, and investors no longer seem to view storage as a liability when it’s paired with wind or solar development. However, one barrier remains in place: cost.

“Cost is where the challenge is,” Prabhu said. “To get to that next level of growth, the cost needs to come down.”

That could explain why investors spread their funds across emerging storage technologies, to hedge their bets against the high price of lithium, Prabhu said. It could also open opportunities for investment in manufacturing. Although battery manufacturing has yet to draw significant new investment, Prabhu believes it could in the coming year as the effects of the IRA take hold.

“So far everything has been on paper,” he said. “If someone wants to manufacture in the U.S, it’s not going to happen overnight. These [factory] sites are huge, they need huge amounts of land. They have to pick a state and a city and find out what incentives there are and taxation, and all that is happening right now.”

Smart grid companies and technologies that are also incentivized by the IRA attracted $3.3 billion in 2022 venture capital, a 175% increase from 2021. Venture capital represents the majority of the $4.7 billion in corporate funding for smart gird technologies. But another area supported by the IRA, energy efficiency, garnered only $490 million in investment last year — significantly less for the sector than five years ago, according to Prabhu.

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