Ankur Capital
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Ankur Capital

Energy Storage: The opportunities in the next decade

  • The climate crisis is driving the uptake of renewables. Diversifying the global energy mix with renewables will go hand in hand with the need for energy storage over the next decade.
  • There are various types of energy storage technologies, but electrochemical systems — or simply batteries — are the most versatile for applications.
  • While the mobility space accounts for the bulk of innovation in battery technologies, led by lithium-ion, the growing need for stationary applications is promoting alternative chemistries and reducing their production costs.
  • The underlying factors for the growth of stationary applications are policy reforms, boost in renewable energy generation capacity, high volume of R&D in the space and decreasing costs with economies of scale.
  • It seems an opportune time to invest in battery technologies but it’s important to understand commercialization challenges beyond capital constraints and learn from precedents.
  • Early-stage investments from private venture capitals are picking up in India.

We’ve well understood the need to achieve net zero emissions to avert the negative effects of climate change — the question is how quickly we can get there. While structural impediments keep us from diverting from fossil fuels entirely, we will see a rapid uptake of renewables in the decade to come. India itself has committed to meeting 50% of its electricity requirements from renewable energy sources by 2030 and reaching net zero by 2070.

But is it fast enough? The Intergovernmental Panel on Climate Change (IPCC) insists that we must reach net zero — a balance between the amount of greenhouse gas produced and the amount removed from the atmosphere — by 2050 to meaningfully curb rising global temperatures. To get there, we need unprecedented technological transformation while balancing the need to provide everyone access to clean, affordable and reliable energy.

Clean, renewable energy has the potential to meet our global energy needs which stands somewhere close to 23000 kWh per capita, that’s equivalent to burning more than 2300 liters of petrol. The cost of installing renewables has dropped — to the point that solar is now cheaper than coal — but there remains inertia in following through with pre-existing fossil fuel infrastructure. Structural changes to diversify the global energy mix are slowly but surely progressing, but there are still inherent supply-demand challenges with renewable energy production and use. On the supply side, production capacity varies depending on various factors including the instrument, time, and location. On the other hand, while renewables have connoted limitless production capability, outputs may not balance consumption needs — again depending on time, location, and use. Hence, the fundamental issue here is reliability. Can we rely on renewables to power economic growth while counteracting carbon emissions?

If we are to overcome the twin challenges of climate change and energy for all, we need to innovate capabilities and efficiencies in energy management. This is where we see the case for investing in energy storage technologies.

What are energy storage technologies?

Energy storage technologies are vehicles to save electricity for later use. They can be classified based on their form and mechanism: electrochemical storage as in batteries, electrical storage as in supercapacitors (SCs), magnetic storage as in superconducting magnetic energy storage (SMES), kinetic storage as in pump hydro, and chemical storage as in hydrogen.

The application of each technology is driven primarily by power density and discharge duration. Power density refers to the net energy transferred by the system within a given period while discharge duration refers to the total time required for the system to release its stored energy.

Technologies with high power densities and moderate discharge durations lasting a few hours to a few days are generally used to store renewable energy for grid application. These include pumped hydro and compressed air energy storage systems. Technologies with moderate to high-power densities and low discharge durations lasting only a few minutes are used to manage variability in energy production such as voltage and frequency regulations. These include lead acid batteries, lithium-ion batteries, nickel-cadmium batteries, redox flow batteries, flywheels, and supercapacitors. Some battery systems which have lower power densities and moderate discharge durations are used in behind the meter applications such as home solar systems, EV charging systems, and data centers. The technologies and their applications are visualized in the graph below.

Energy storage technologies and applications

Among the various energy storage technologies, electrochemical systems or batteries span the widest spectrum of power outputs from 1 kW to more than 100 MW. This makes them suitable for a multitude of applications ranging from mobile electric vehicles to stationary storage of renewable energy. For mobility, moderate to high power densities with discharge rates of a few hours can be used. In contrast, similar power densities with much lower discharge rates ranging from a few seconds to a minute can be used for stationary operational applications.

Boom in demand for stationary batteries

The rise of EV adoption has boosted the demand for mobile batteries. Given the application’s proximity to consumers and ensuing short product feedback cycle, innovation has flourished in the mobility space. Stationary storage has been less sexy. Mature mechanical systems such as pumped hydro are mostly amenable to project financing. However, recent improvements in battery energy outputs, life cycles and the decrease in production costs are making stationary storage more attractive for innovation hungry capital. In fact, demand for stationary solutions is expected to grow 125 times by 2040 — outpacing advanced batteries for mobility.

Demand for battery storage technologies for various applications.

The stationary battery market is seeing capital injected by both the public and private sectors. In 2020, total investment into the stationary battery market was $5.5 billion, up more than 40% from the previous year. Of this, 60% of the investments went into grid scale batteries, while behind-the-meter systems claimed the remaining portion.

Lithium, the most sought-after material component in mobile batteries, is equally popular in stationary given the maturity of the technology. However, they are not necessarily the best fit for stationary application, especially on the grid. While capital has flown predominantly into lithium-ion, we’re starting to see a shift in VC funding towards new materials. Globally, companies such as Form Energy (iron-air batteries), Natron (sodium-ion batteries), and Highview Power (cool-air batteries) have raised large sums from the likes of Energy Impact Partners, Temasek, The Engine, Sumitomo Heavy Industries, Breakthrough Energy Ventures, and Evok Innovations. As investments grow, the challenge for these new technologies will lie in overcoming supply chain constraints, managing recyclability, and scaling devices in response to adoption trends.

Zooming into India, the public sector is playing a big part in building out the battery market. The government has allocated over $2.46 billion in incentives to support the development of advanced chemistry batteries over the next 5 years. The incentives aim to boost manufacturing capabilities with a target of producing 50 GWh Advance Chemistry Cells (ACC) such as lithium-ion batteries and 5 GWh of upcoming niche ACC such as hydrogen fuel cells.

Private investments are beginning to crowd in. Large incumbent energy companies are making their bets. In mid-2021, Tata Power announced plans to set up a 50 MWh battery manufacturing plant. Reliance Industries also established a new subsidiary to build 100 GW of renewable energy capacity. Under Reliance New Energy Solar Ltd, the company acquired Faradion, known for successfully commercializing their sodium-ion battery technology. While large energy players are financing the scale-up of technologies, private venture capitals are slowly catching the wind. VCs such as Ankur Capital, Petronas Ventures, Exfinity Venture Partners have started investing in early-stage startups working on advanced battery technologies.

Below we highlight a handful of recent investments into battery technology startups in India.

Private investments in battery technologies in India

Underlying the growth of stationary

There are four favorable conditions pushing investments into stationary battery technologies.

1) Policy reforms key in on storage: At the onset of the energy transition, the focus of government policy was very much on promoting renewables. As we increasingly integrate renewables into the mix, the discussion has shifted towards streamlining the system. Around the world, policies have been oriented to energy storage more specifically. In the US, the Federal Energy Regulatory Commission (FERC) 841 has made storage an important part of the energy market. The European Union has also included energy storage as part of the clean energy for all European Package. Similarly, in India, domestic manufacturing of energy storage devices is being promoted through Preferential Market Access.

2) Boost in renewable energy generation capacity: The deployment and hence capacity of solar PV and wind generation has increased dramatically — up 50% and 90% respectively in 2020. Overall, the production capacity of renewables grew by over 45% from 2019 to 2020, adding 280GW into global supply. The increased capacity in tandem with the aforementioned management challenges is critical in driving battery development and adoption.

Per data from IBEF, India has 101.53 GW of renewable energy capacity with a target of 450 GW by 2030. The country has already seen investments of more than $42 billion in the renewable energy sector since 2014 and ranked 3rd in the world for energy investments in 2020.

4) Decrease in costs as economies of scale kick in: The cost of developing batteries has been on a downward curve over the last 10 years, driven primarily by the rise in demand for EVs. The average price of lithium batteries has plunged from $1191/kWh in 2010 to around $137/kWh in 2020. This is expected to go down another 50–60% by 2030 as EVs shift from a novelty to the norm. Other materials will similarly evolve to meet demands for stationary application.

Capital cost of energies is decreasing and over the next decade, electrochemical batteries such as lithium-ion, lithium-metal, zinc flow batteries will become cheaper than energy stored in natural gas well as other existing technologies.

4) Rise in patent applications: The number of patent applications for energy storage technologies crossed more than 7000 in 2018, up 500% since 2008. The combined total for patents in other technologies grew only 50% in the same time period. Of the mentioned 7000 patents, around 88% were related to inventions in electrochemical battery technology. While lithium-ion has been the darling of R&D which subsequently brought down its manufacturing costs, increasing interest in other materials are anticipated to have a similar impact on the economics.

These innovations have coincided with a drastic decrease in the cost of lithium-ion batteries, highlighting the importance of these extensive research activities in commercializing advance battery technologies.

The path ahead

While it appears an opportune time to invest in batteries, it’s important to keep in mind that it’s a challenging market to nail.

In this market, there is no one size fits all nor winner takes all. There is a wide range of energy storage technologies and they come with their own strengths and weaknesses. At the end of the day, deep tech is what it is because of challenges in commercialization. To succeed, there’s more to it than injecting capital. Many aspirants have called it quits. Below we outline a few case studies to learn from their failures.

Challenges for energy storage technology startups

Scaling up battery technologies is capital intensive and comes with risks in raw material procurement, technology transfer, and capacity utilization among others. Companies currently inching towards commercialization will need to find solutions for these to become a success. Long feedback loops in deep tech mean that entrepreneurs and investors must be in it for the long haul with a clear line of sight.

All in all, the decade ahead promises to be an exciting one for energy storage technologies, especially batteries. Opportunities in the off grid and on grid storage of energy will require these technologies to become cost effective, improve their efficiencies, and increase their lifetime value. Both the public and private sectors have a role to play in the energy transition as we solve for both minimizing the effects of climate change while ensuring energy for all. Early-stage investments from private venture capitals will support the initial research, technology development and commercialization.



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