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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Why The Future For Energy Storage Just Got Brighter

The energy storage market is rapidly becoming one of the most exciting spaces in all of renewables. Unlike solar, wind, coal, and natural gas power which are all substitute forms of generation, there really is no other mechanism to perform the function of energy storage outside of batteries. There have been various suggestions made about the size and structure of batteries to be used in grid scale storage, but there seems to be little doubt about the need for the storage itself.

Two major developments in the energy storage space highlight its growing viability in the markets. First, even that the most dysfunctional of American institutions, the Congress, is getting interested in energy storage.

Recently, a bipartisan group of legislators announced they are forming the Congressional Battery Storage Caucus to help support the industry and persuade colleagues of the importance of passing legislation to aid the emerging market. “Battery storage technology paired with renewables such as wind and solar has the power to transform the energy landscape,” said Rep. Mark Takano (D-CA) at the official Caucus announcement. Related: As Prices Tank, This Natural Gas Exporter Became A Net Importer

The goal of the Caucus is to “promote some good science [and] encourage the continued investment in research” according to Rep. Chris Collins (R-NY). The most likely results from the Caucus are potential for special tax subsidies for the battery storage industry and potentially Federal dollars earmarked for research into the science underlying storage batteries.

There are massive opportunities to improve fundaments of this science in particular, since much of the industry is still in nascent stages which makes effecting change in the standard operating practice of the industry easier.

Adding to the viability of the Caucus, other members joining the Caucus include Reps. Mike Honda (D-CA), Scott Peters (D-OH) and Dana Rohrabacher (R-CA). Representatives from Johnson Controls (JCI) and AES (AES) were at the Caucus announcement suggesting that both firms expect to see some benefits from the new organization and more broadly, view grid scale energy storage as an important driver for their businesses in the future. Related: Big Oil: Which Are The Top 10 Biggest Oil Companies?

The second major development suggesting a bright future for energy storage comes from Wall Street. Goldman Sachs recently announced that it will invest $150B in renewables by 2025 including funding for energy storage businesses. This funding level is a major increase versus Goldman’s 2012 announcement for a target investment of $40B.

Unfortunately for retail investors hoping to follow in Goldman’s footsteps, the giant investment bank has opportunities that average investors do not. Given its constraints under the Volker Rule, Goldman is unlikely to be taking significant positions in individual stocks. Instead, the likely course of action for this investment is for Goldman to provide financing through the syndicated loan markets. The company underwrote its first solar securitization in 2013 for a project in Japan, and that deal is likely to be typical of the bank’s approach to grid storage as well. Related: Oil Prices Down As Storage Keeps On Filling Up

However, Goldman Sachs also sees an opportunity for investors at the Main Street level. The firm put out a research now suggesting the market is a massive untapped opportunity for investors that will change the way the utility industry does business.

Goldman estimates that with costs coming down and technology improving, the energy storage business has the potential to be a $150B market within a few years. Goldman highlighted several companies that look well positioned to benefit from this nascent emerging industry including well known firms like Tesla and Solar City as well as lesser known firms like lithium producers Albemarle and FMC Corp which trade under the ticker symbols ALB and FMC.

By Michael McDonald of Oilprice.com

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