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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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The Hottest Energy Investment Niche Of 2020

What a difference a decade can make. Ten years ago, Li-ion batteries were mostly confined to phones and personal computers; fast-forward to the present and they now power our cars, houses, unmanned aerial vehicles (UAVs), marine vehicles, and even factories.

The coming energy storage explosion will, however, make all this look like a mere stage rehearsal.

A host of energy experts including the U.S. Energy Information Administration (EIA), UBS, BloombergNEF, S&P Market Intelligence, Wood Mackenzie and others are extremely bullish about the prospects of the battery storage industry-- both over the near-and long-term--as the clean energy drive gains huge momentum.

Investors who capture the massive economic opportunity could enjoy long growth runways for decades to come.

Utility-scale storage critical in a green world

With the severity of our climate crisis becoming more apparent with each passing day, the need to rapidly transition to a renewable-fueled world becomes even more urgent. Despite our best efforts, greenhouse gas emissions have kept climbing, putting paid our goal to keep the planet from warming to no more than 1.5 to 2 degrees Celsius above pre-industrial levels. This calls for deeper cuts on dangerous emissions and a much faster transition to lower or zero-carbon energy sources.

At the center of our green energy drive are solar and wind power, both of which are expected to contribute nearly half of the global power mix by 2050 as per Bloomberg New Energy Finance. The intermittent nature of these renewable sources, however, means that large-scale storage is absolutely critical if the world is to successfully shift away from high dependence on fossil-fuels.

The surge in lithium-ion battery production since 2010 can be chalked up to huge improvements in the technology from a cost and performance standpoint. 

Over the past decade, an 85% decline in prices fueled a revolution in lithium-ion battery technology, making electric vehicles and large-scale commercial battery deployments a reality for the first time in history.

The next decade will be defined by a massive increase in utility-scale storage. Related: Iran Regime Change Could Push To $40 Oil

United States utilities are trying to cut down on emissions by implementing utility-scale battery storage units (one megawatt (MW) or greater power capacity).

In March 2019, NextEra Energy (NYSE:NEE) announced plans to build a 409-MW energy storage project in Florida that will be powered by utility-scale solar.

Xcel Energy (NASDAQ:XEL) plans to replace its Comanche coal units with a $2.5-billion investment in renewables and battery storage, including 707 MW of solar PV, 1,131 megawatts (MW) of wind and 275 MW of battery storage in the State of Colorado.

In October, Duke Energy (NYSE:DUK) announced plans to build an energy storage project at the Anderson Civic Center, Carolina, including investments to the tune of $500 million in battery storage projects for electricity generation capacity of 300 MW. 

It’s interesting to note that these utilities that are investing heavily in renewable energy have outperformed their peers, returning 33.7%, 31.1% and 17.6%, respectively, compared to the industry’s 13.3% return in the past year.

The outlook for the battery storage industry is as rosy as they get.

According to the EIA, operating utility-scale battery storage power capacity in the United States more than quadrupled from 2014 (214 MW) through March 2019 (899 MW). The organization projects that utility-scale battery storage power capacity could exceed 2,500 MW by 2023, or a 180% increase, assuming currently planned additions are completed with no current operating capacity being retired.

UBS estimates that the United States energy storage market could grow to as much as $426 billion over the next decade.


Source: EIA

If that sounds a tad ambitious, consider that California, the world’s fifth largest economy, is on track to get 50% of its electricity from clean sources by 2020 and has already ratified SB 100 that requires 100% of the state’s power requirements to be supplied by clean energy sources by 2045. Laura Wisland of the Union of Concerned Scientists has told KQED Science that California’s cost of solar and wind power is already competitive with natural gas.


Source: KQED Science

Other states might soon have to follow California’s lead: S&P Platts reckons state policies and peaking capacity needs will remain the major drivers of near to medium-term battery deployments.


Source: S&P Global Platts Analytics           

The global picture is even brighter.


According to Wood Mackenzie’s latest report on power and renewables, global energy storage deployments are set to grow thirteenfold from a 12 gigawatt-hour market in 2018 to a 158 gigawatt-hour market in 2024. That works out to $71 billion in investment into storage systems excluding pumped hydroelectric storage (PHS) and underground compressed air energy storage (CAES), currently the lowest cost and most commonly used renewable storage technologies.  Related: Florida To Buy Part Of Everglades To Protect Them From Oil Drilling

The United States and China are expected to gobble up 54 percent of global deployments by 2024.

Investment opportunities

There is no shortage of ways to buy into the battery storage surge including battery cell makers, car companies, chemical companies, utility companies, solar companies and wind power companies.

Obviously, the most direct exposure can be obtained by investing in battery cell makers. Tesla Inc.’s (NASDAQ:TSLA) famous car and grid batteries are supplied by Japanese manufacturer Panasonic. Companies like NextEra and Fluence that integrate large battery enclosures source their cells from Samsung SDI or South Korea’s LG Chem. Integrators also frequently turn to a growing roster of Chinese producers whenever those top-tier suppliers become supply-constrained.

However, US investors might soon have a way to invest in battery companies in their own backyard. 

Last year, the Department of Energy unveiled the “Grand Challenge” project that proposes to establish a domestic energy storage supply chain by 2030. Specifically, the DOE aims to build “a secure domestic manufacturing supply chain that is independent of foreign sources of critical materials” by the year 2030.

For investors looking for a more futuristic slant, Form Energy is a startup that’s developing aqueous sulphur systems for long-duration grid storage. If successful, the batteries will last much longer between charge cycles than conventional Li-ion batteries. Form Energy was founded in 2017 and has already raised $49 million venture capital thanks to the backing of big names such as Breakthrough Energy Ventures, Macquarie Capital Breakthrough Prelude Ventures and, lately, Italy’s energy giant, ENI.

By. Charles Kennedy for Oilprice.com

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