2023: The energy transition takes flight despite some turbulence
2023 is poised to be an incredible year for the energy transition. New regulations, public spending, and private investment are fueling more momentum than ever before. At the same time, supply chain disruptions, rising battery metals prices, inflation, and geopolitical conflict will undoubtedly present major challenges. A picture is worth a thousand words, so perhaps this graphic from Bloomberg sums up renewables and storage in 2023 better than anything else:
In short, despite storage system costs rising 28% year on year due to these headwinds, storage installations, this year will double on a gigawatt-hour basis.
At Innovation Endeavors we are eager to support teams working to accelerate the deployment of renewables and storage. We recently hosted a dinner with leaders from the energy industry, and discussed some of the key opportunities and challenges of the coming decade, highlighted below.
- It is not entirely certain electricity will get cheaper in the short term → As we add renewable supply, there will be a few decades of overlap between existing fossil fuel assets on the grid, and new, effectively overbuilt projects. As utilities amortize the cost of both assets and pass those along to customers, we may not immediately see the savings promised by low-cost wind and solar. Nevertheless, this should not deter us on the path to abundant, cheap, and clean power.
- Interconnection queues and labor shortages are two of the most significant bottlenecks to faster rollout → With EPCs unable to find enough labor to keep up with demand, we hope automation — led by companies like Charge Robotics — will reduce the availability issue. Interconnection is another massive blocker to getting projects off the ground with feasibility studies, land acquisition, commissioning, and permitting placing a huge drag on the industry. Seemingly straightforward improvements and policy changes like “first-ready, first-served” can have massive upside and further reforms are critical.
- Utilities are having a hard time planning with rapidly changing regulations, technology, and behind-the-meter capacity → Given the longevity of energy assets, utilities are struggling to optimize capital decisions without high confidence in go-forward assumptions.
- Supply chain disruptions, and rising prices of core material like polysilicon and lithium, are a major challenge for developers → While the government is incentivizing onshoring and friend-shoring of energy component manufacturing to ensure energy independence and security, it’s possible these shifts will exacerbate already elevated costs.
- Lithium-ion will be difficult to compete with for intra-day grid storage needs, but for use cases longer than ~10 hours, novel batteries are needed, and a lot of them → The IRA has made utility-scale storage projects radically cheaper, and new low-cost storage technologies, such as Form Energy, are at the beginning of an exciting S curve of commercialization. We expect to see a significant acceleration in the rollout of grid-scale storage to manage intermittency and reduce energy costs and associated emissions. Products like Verse hope to help corporate energy buyers leverage and optimize this increased storage capacity for energy cost and/or emissions reduction.
We’re confident 2023 will be a banner year for rollout of storage and renewables despite these challenges, and that the opportunity to build solutions that allow us to accelerate is massive. Please see our framework for building in the space here, and as always, reach out with any questions or feedback. We look forward to hearing from you!