2023 was a rough year for venture capital funding in the United States. Across sectors, venture capital investments dropped by a whopping 30%, from $242.2 billion in 2022 to just $170.6 billion recorded in startup funding last year. The tip comes as the economy tries to absorb the whiplash of inflation and readjusted valuations. But a couple of key sectors saw marked increases in an otherwise dismal year: artificial intelligence and energy storage. Together, these sectors paint a vivid picture of where the United States economy is headed.
Both of these sectors are still in their nascency, with huge technological advances expected just around the bend, and firms are scrambling over each other to get in on the ground floor. Both AI and energy storage will be integral to the future of the energy sector as the world leans into decarbonization, requiring a near-complete overhaul of the way we produce, consume, trade, transport, and store electricity.
Meeting global climate goals will therefore require unprecedented systems transformation, which will heavily rely upon intelligent, responsive, and flexible computing systems able to recognize and predict complex patterns of production and consumption. Already, artificial intelligence and machine learning are integral to renewable energy forecasting, smart grids, coordination of energy demand and distribution, maximizing efficiency of power production, and research and development of new materials. It will also work alongside energy storage, which will be a key component of grid regulation and management going forward.
Energy storage is essential to the clean energy revolution because key renewable energies like wind and solar power are variable – meaning that their production levels wax and wane according to variables well outside of human control, such as weather patterns, seasons, and the time of day. This is one of the key challenges in transitioning away from fossil fuels, which can be used to produce energy on demand. This transition will require a high degree of grid flexibility, as well as long-term energy storage capabilities.
Long-term energy storage solutions would capture and store surplus energy when solar panels and wind turbines are producing more power than the grid demands, and feed energy back into the grid in times when demand outstrips production. This could be over the course of a day, or over the course of a year, such as with surplus solar energy captured during the summertime being fed back into the grid during shorter winter days.
Currently, the energy sector is dominated by lithium-ion battery packs. But this technology presents some major drawbacks for the industry as a whole. The biggest issue is their problematically short-lived storage capabilities, which are measured in hours rather than months or years. To fix that problem, there is a major research and development race underway to discover the next big long-term energy storage solution. Venture capital funding is currently helping research teams around the world try out innovation solutions ranging from futuristic green hydrogen schemes to straightforward approaches involving pulleys, weight, and gravity.
While the riddle of long-term energy storage hasn’t quite been cracked, it’s nevertheless set to be an incredibly lucrative industry. Law firm Morgan Lewis recently referred to the storage sector as “the technology that will cash the checks written by the renewable energy industry,” and went on to describe that “the global energy storage market will continue its rapid growth, with an estimated 387 gigawatts (GW) of new energy storage capacity expected to be added by 2030—a 15-fold increase in global energy storage capacity compared to the end of 2021.”
Investing patterns are following those projected trends. VC firms funneled a record-high $9.2 billion into 86 deals in energy storage in 2023, according to a report from research and communications company Mercom Capital Group. That marks a 22% increase from 2022. 33 out of 86 deals were related to battery technology, with $2.6 billion earmarked for lithium-ion batteries. Other funded storage solutions included thermal batteries and gravity-based energy storage.
By Haley Zaremba for Oilprice.com
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