From private equity to public markets to direct investments from pension funds, battery storage companies today have numerous means to get funding. All of these channels are seeing a surge in money flowing to battery storage, driven by falling costs for batteries and rising demand amid a continued boom in renewable energy, expansion of distributed energy resources, and increased need for the grid services that batteries can provide.
And while challenges exist, most experts agree that institutional money will continue to find its way to these companies.
One of the greatest sources has been corporations. Battery storage companies logged a combined $11.4 billion in corporate funding via 73 deals in the first nine months of the year, according to a new report from Mercom Capital Group. That was up sharply from $3.5 billion and 35 deals in the same period of 2020.
Venture capital funding for battery storage companies, meanwhile, totaled $5.5 billion via 59 deals through the third quarter. Again, that’s up significantly from the $1.2 billion raised through 21 deals in the first nine months of last year.
Overall, that nearly $17 billion in total funds is “the highest ever amount of funding received by battery storage companies in a nine-month period,” Mercom says.
That money is being put to good use. According to the U.S. Energy Storage Association, 345 megawatts of new energy storage systems came online in the second quarter, a 162% increase over Q2 of last year and the second-largest quarter ever for energy storage additions in the U.S.
These numbers are confirmed by practitioners.
“We are seeing growing interest in battery storage,” says Mark Richards, EMEA Head of the Energy, Environment & Infrastructure team at Bryan Cave Leighton Paisner.
Due to factors like a “dramatic” fall in the cost of battery storage technology over the past few years, “We’re seeing a huge amount of interest in deploying battery storage, across various uses,” he says. Besides adding storage to renewable energy projects, battery storage can be used for grid services such as load management, frequency regulation and peak shaving, or to hedge energy prices.
Battery storage developers are finding multiple routes to get the funding they need. Private equity has been especially active lately, with multiple big announcements in August alone. Among the fund-raises this year:
– In August, Generate Capital led a $240 million investment round for Nexamp, which develops stand-alone battery storage projects as well as community solar projects paired with energy storage. The company also raised $440 million in debt financing.
– Also in August, iron-air long-duration battery maker Form Energy raised $240 million in a Series D funding round. Investors included Breakthrough Energy Ventures, Coatue, ArcelorMittal, TPG Rise Climate and Macquarie Capital.
– FlexGen Power Systems raised $150 million in August from Apollo Global Management and existing investors. FlexGen designs and integrates utility-scale battery storage systems and software platforms to integrate them into the grid.
– Ambri, which makes a high-temperature liquid metal battery for long-duration storage, raised $144 million from India’s Reliance New Energy Solar, Bill Gates, Paulson & Co. and others. Reliance and Ambri also began talking about collaborating on a large-scale battery manufacturing plant in India.
– In June, Swedish battery manufacturer Northvolt raised $2.75 billion in a private placement that will let the firm increase its battery cell production capacity and R&D. Backers included several Swedish national pension funds (AP1, AP2, AP3 & AP4) and OMERS, as well as existing investors Goldman Sachs Asset Management and Volkswagen.
– In January, Coatue and T. Rowe Price Funds led a $590 million investment in Sila Nanotechnologies, which makes lighter and higher-density batteries for use with renewable power sources as well as electric vehicles and smart phones. Joining the Series F funding round — which valued the company at $3.3 billion — were existing investors Canada Pension Plan Investment Board, 8VC, Bessemer Venture Partners, Sutter Hill Ventures and more.
Battery storage companies are finding funding in the public markets as well. In October, flow battery maker ESS went public through a reverse merger with a Special Purpose Acquisition Company (SPAC). Stem, which pairs battery storage with smart software, also went public via a SPAC in April.
And in early November, battery storage company Fluence — formed as a joint venture between AES and Siemens — raised nearly $100 million in an initial public offering.
Some companies are getting direct investments from pension funds. In July, Flexion Energy, which builds, owns and manages large-scale battery systems connected to the UK electric grid, took a £150 million ($204 million) investment from GLIL Infrastructure. GLIL is a fund created by several pension funds from London, Manchester and elsewhere across England that invests in a range of sustainable infrastructure projects and companies.
There will continue to be robust funding opportunities as battery storage companies develop new technologies and work to install new capacity. In fact, project developers plan to install more than 10 gigawatts of large-scale battery storage power capacity in the U.S. between this year and 2023, according to an August report from the U.S. Energy Information Administration. That’s up from just 1 GW of storage power capacity in 2019 — a 1000% increase in just four years.
Going forward, Richards thinks the bulk of new institutional money entering the sector will be for lithium ion and other proven battery systems, rather than new and potentially unproven technologies. “New technology is always difficult for institutional investors who are looking at infrastructure type returns, because they need to pay their pensioners,” he notes.
Still, as the surge of investments in August shows, there remains plenty of corporate and other money available for cutting-edge battery technologies. That’s likely to persist.
One of the biggest challenges that may limit the growth of battery storage is supply. “Regardless of how many gigafactories are announced around the world, there are very few that are actually generating enough cells to be diverted away from high-paying car manufacturers and to be put into stationary storage on the grid,” Richards says. “So that’s a big challenge.”
Indeed, the Energy Storage Association report notes that residential battery storage in the U.S. dropped slightly in Q2 for the first time in more than two years. That’s mostly due to “equipment constraints,” including an ongoing shortage of Tesla Powerwalls, which is limiting growth in the segment “despite the proliferation of new residential storage players.”
Still, with strong demand and ever-increasing attention being paid to the need to decarbonize the energy sector — a shift that will require vast amounts of energy storage — it seems clear that the surge of dollars into battery storage companies in August, and throughout this year, has staying power.
Noteworthy recent fundings
Virtual power plant companies are also finding funding. For instance, VPP software provider Autogrid raised $85 million in a Series D round from investors including SE Ventures, Microsoft’s Climate Innovation Fund, GS Futures and Shell Ventures. The Redwood City, Calif.-based company will use funding to scale up its VPP platform for distributed energy resources.
Meanwhile, San Francisco-based Leap raised $33 million in a Series B round from Park West Asset Management, Climate Capital, Union Square Ventures and others. Leap offers distributed energy resources software. Like Autogrid, Leap’s software can help to provide capacity and balancing services to the electrical grid.
Among the many noteworthy fund launches of late is one from Generation Investment Management, the fund founded by former Vice President Al Gore. The firm launched a new climate-focused fund, Just Climate, that is backed by institutional investors including Harvard University‘s endowment, Microsoft’s Climate Innovation Fund, a Goldman Sachs Asset Management unit, the IMAS Foundation, Hall Capital Partners and the Ireland Strategic Investment Fund. Shaun Kingsbury, the former CEO of the UK Green Investment Bank, will be the CIO of the new fund, which will look to invest in catalytic climate solutions across sectors like energy, transportation, industry and buildings, as well as natural climate solutions and food & ag. The new vehicle’s initial funding amount was not disclosed.
Overall, climate tech startups raised almost $13 billion via more than 200 deals in the third quarter, according to new data from Pitchbook, up 38% from Q3 of last year. Electric transportation saw the most inflows of any sector in Q3. In a sign of just how hot the climate finance sector is becoming, the private equity-focused data and research provider is launching a new effort focused on climate tech.
Here’s a quick look at some other recent and notable fundings and fund launches.
HSBC and Temasek teamed up on a partnership to catalyze sustainable infrastructure projects across Asia. The goal is to scale up to $1 billion worth of loans within 5 years to support commercial development of sustainable infrastructure across the region. The Asian Development Bank and Clifford Capital Holdings will support the effort as strategic partners.
Spring Lane Capital raised $151 million at first close of its new catalytic project capital private equity fund, on its way toward a target of $400 million. The fund, the firm’s second, will make investments in companies and project developers working in sustainable infrastructure sectors such as energy, food & ag, transportation, water and waste. The Boston-based company also announced a $13.5 million investment in West Virginia-based indoor farming platform Vandalia Growers USA, and an undisclosed investment in an unnamed renewable fuel company in California that turns animal waste into renewable natural gas.
S2G Ventures will help run a new $300 million fund that will invest in clean energy funds, with a focus on real assets. Builders Private Capital is reportedly backed by Lukas Walton, the grandson of Walmart founder Sam Walton. Builders Private Capital has tapped Stephan Feilhauer and Francis O’Sullivan to oversee this new energy strategy. Feilhauer joined from Macquarie Capital while O’Sullivan was head of onshore strategy at Ørsted.
Chicago-based Energize Ventures closed its second flagship fund with $330 million, with the bulk of the funding coming from institutional investors and family offices. The firm now manages $700 million overall from anchor investor Invenergy and LPs that include Canadian pension CDPQ, SE Ventures, GE Renewable Energy, Hannon Armstrong, Credit Suisse and more. Energize Ventures invests in digital infrastructure solutions in areas like battery storage, renewable energy, and mobility.
MacKinnon, Bennett & Co. raised $175 million for its MKB Partners Fund II, which will target late venture and early growth-stage companies that focus on electrification, decarbonization and digitization of the transportation and energy sectors. Montreal-based MKB says the fund was oversubscribed and took in money from institutional and family office investors including BDC Capital, CDPQ, Fonds de solidarité FTQ and TD Bank.
Swedish electric vehicle maker Polestar went public via a merger with a U.S.-listed blank-check firm, a move that netted the firm more than $1 billion in cash and valued it at $20 billion. Backers of the SPAC were Alec Gores and Guggenheim Partners. Polestar was founded in 2017 by Volvo and Chinese automaker Geely.
Los Angeles-based hydrogen aviation startup Universal Hydrogen raised $62 million from a long list of investors including Mitsubishi HC Capital, Tencent and GE Aviation. The company raised about $21 million in a Series A round in April that included Coatue, Airbus Ventures, JetBlue Technology Ventures and Toyota Ventures; most of those earlier investors took part in the latest round. Universal Hydrogen plans the first test flight of its hydrogen fuel cell powertrain on a regional airliner next year.
Zouk Capital backed a £30 million ($41 million) investment in UK EV-charging company Zest. Zest is working to deploy EV charging stations at sites like shopping centres, restaurants and parking lots.
GoodLeap raised $800 million from investors including MSD Partners, BDT Capital Partners, Davidson Kempner and others, in a deal that values the company at $12 billion. The San Francisco-based company offers a range of residential lending products including solar financing and sustainable home improvement loans.
In addition to its new fund, Generation Investment Management is also investing $600 million in Octopus Energy Group in exchange for a 13% equity stake. Octopus, which supplies renewable energy to more than 3 million people in the UK, says it will use the funding to increase its investments in clean energy generation.