Defining the grid of today and tomorrow

Troy Ault

Key Takeaways

  • Innovation continues to power the clean energy transition, despite unprecedented volatility in energy markets.
  • Exponential growth in the energy storage market is projected as utilities make big bets on energy storage.
  • Innovative storage and software-enabled technologies will unlock additional value and power the grid of tomorrow.


The vibrant future of energy storage

ERI image.png

In the past two months, like the rest of the economy the energy sector was upended. Oil prices went negative for the first time, Rystad Energy projected $1T in revenue losses for exploration and production companies, and the S&P 500 Energy Industry Group lost 61% of its market cap between January 1, 2020, and its trough on March 18. Yet this massive volatility has been driven largely by demand shocks and trade disruptions in fossil fuel markets, not alternative energies. For the first time, major energy companies have seen their renewable portfolios outperform their fossil fuel portfolios, with the US Energy Information Administration recently reporting that renewables were the only form of energy to see growth in Q1 2020.

As distributed and variable generation resources proliferate, grid infrastructure will continue to adapt and become increasingly reliant on energy resources such as demand response and energy storage to provide grid services like frequency response, spinning reserves and excess energy to meet demand. It is for these reasons that, despite the inclement economic environment, we at Silicon Valley Bank have great hope for the future of innovative companies’ providing solutions in the energy and resource innovation space. While immediate headwinds exist, the dramatic technological advances and innovative companies enabling an efficient, sustainable and resilient grid will continue to grow and prosper.

Yesterday’s vision, today’s reality: The rise of lithium-ion technology

We are at an inflection point. Five years ago, what kept energy storage from going mainstream was the technology and cost; today, the technology portfolio is more robust and economies of scale have driven prices down, making storage cost competitive with other energy resources. The discussion around storage has moved from feasibility to adoption and deployment — and deployment is booming. In 2019, roughly 4 gigawatts of energy storage were deployed globally. SVB alone has had the opportunity to finance battery storage projects ranging from utility, to small commercial and industrial, to residential-scale units amounting to more than 200 megawatts of capacity.

Global energy storage deployment (in gigawatts)

Source: US Energy Information Administration, Wood Mackenzie.

The rise of storage deployment is thanks to the innumerable battery OEMs that have brought innovations and economies of scale to market. Major automakers like Nissan and Tesla, tech companies like LG and Panasonic and newer companies innovating in novel battery designs — all grow the pie of lithium-ion battery options for energy storage.

Notable energy storage companies

ERI-total-raised-to-date-image.png

1 “Total raised to date” does not include grant funding. Source: Pitchbook.

Thin margins in the highly competitive utility-scale solar space have driven interest in the retail market, which has become a focus of many storage companies that are leveraging established solar companies as channel partners to deploy storage. Companies that pioneered widespread adoption of solar, such as Sunrun, have expanded product offerings to include storage. The long-term outlook for residential storage looks good, but with rapidly declining consumer sentiment and most of the world sheltering in place, retail energy storage may see a near-term decline. Yet as the economy recovers, consumers will return and retail storage will continue its significant expansion.

While total electricity demand has declined ~5% globally and peak load has flattened during the pandemic, large utilities are betting on storage both to help meet sustainability goals and to improve system reliability as more variable generation enters the grid. NextEra just announced a plan to spend $1B on storage projects in 2021. Critics point out that falling fossil fuel prices offer a substitute in the form of natural gas, but as oil prices fall fewer wells will be active in the Permian Basin. The resulting drop in natural gas production will bolster prices. Furthermore, with a decline in electric vehicle sales projected for 2020, a surplus of batteries will make both utility and residential storage cheaper. Couple this with utilities’ ability to access low-cost capital in Federal Reserve–bolstered bond markets as investors seek low-risk assets, and the future of utility-scale storage looks bright. NextEra and Duke Energy recently sold $1B in bonds with a 30-year coupon rate of 3.95%. Finally, while utilities will undoubtedly experience significant coronavirus-related costs, many are already seeking to rate base these costs, ensuring plenty of capital in the future to invest in infrastructure improvements. It’s hard to imagine state utility commissions balking.

The new frontier of energy storage

As innovation continues to find new solutions, the question becomes what is next for the energy storage space. Lithium-ion technology appears poised to maintain its lead, yet flow batteries and other promising energy storage technologies may fuel the economy of tomorrow, particularly in applications where lithium-ion-based batteries are less well-suited. On the frontier of energy storage sit myriad solutions: Hydrogenics uses excess generation to produce hydrogen that can later be converted back to electricity, Energy Vault uses robots to lift weights and store gravitational potential energy and Form Energy just promised a groundbreaking aqueous air battery that will provide 150 hours of storage within three years, which could transform the long-duration storage market.

In addition to the potential gains from alternative storage technologies, many promising software-enabled companies are working in the energy optimization and demand response space. Building on current technology, many of these companies rely on artificial intelligence, telematics, the Internet of Things and other technologies to predict and control demand; this allows both consumers and system operators to shift demand from peak times to periods of low demand, thus matching demand and supply curves and preventing costly capacity expansions and grid infrastructure updates. Companies such as Leap and OhmConnect have solved these inefficiencies by acting as brokers among grid operators who pay energy users to reduce demand at peak times. While there are many hurdles for these companies, from regulatory approvals to privacy concerns related to controlling behind-the-meter load, the substantial cost savings and system resilience they provide positions them to be major players in the energy future.

Notable building energy management, demand response and storage companies

ERI-image-3.png

It may seem strange to tout the benefits of energy storage and energy optimization companies amid a global slowdown in electricity demand, but we project that as we begin to resume our normal lives, electricity consumption will continue to grow, as trends toward increased electrification persist.

SVB’s Energy and Resource Innovation practice recognizes the opportunity for innovative companies to ride the next wave of economic growth while transitioning our energy system to a sustainable, resilient and profitable future. We have more than three decades of experience supporting high-growth companies and structuring project finance deals to meet the needs of your business. We welcome conversations with founders, investors and developers seeking to perpetuate the transition to a clean energy economy.

Energy & Resource Innovation

Silicon Valley Bank is committed to helping companies find commercial success as they develop technologies that address sustainability challenges. We offer financial and banking solutions for companies working in energy, resource sustainability, agriculture and food tech, mobility, water and other industrial sectors.
More on this topic


Editor's Top Picks

ENERGY & RESOURCE INNOVATION

Take advantage of our deep experience in project financing. We offer specialized solutions for capital-intensive projects on a non- or limited-recourse basis.

  • Construction financing

  • Tax-equity bridge loans

  • Back-leverage and holding company level debt financing

Learn more
BECOME A CLIENT

Silicon Valley Bank provides banking and financial services to help companies find commercial success as they develop technologies to meet society’s energy and resource needs more sustainably.
Become a client

Troy Ault
WRITTEN BY
Troy Ault
Troy Ault is a Vice President with SVB's Energy & Resource Innovation practice.
Get monthly startup insights and advice

Insights from SVB Industry Experts

 
SVB experts provide our customers with industry insights, proprietary research and insightful content. Check out these related articles that may be of interest to you.
Alaska, frontier for innovation
 
Making the business case for sustainable investment
 
A Record Year for Agtech Activity in Latin America?
 
Stand Up and Be Counted: Take SVB’s Startup Outlook Survey
 
Fundamentals of Fraud Prevention
 
Startup Outlook 2016: Letter from SVB’s CEO