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April 5, 2021
As wind and solar energy become increasingly competitive against traditional methods of power generation, there is a burgeoning need for scaled energy storage—both in front of and behind the meter. As such, energy storage has become the darling of the renewable energy and cleantech worlds today, resulting in company valuations based almost entirely on expected future profits. Numerous notable M&A transactions embody these trends—including some advised by Cascadia in recent weeks.
Over the past two decades, renewable energy has become more mainstream—in residential, commercial, industrial, and utility-scale contexts—and is becoming cost-competitive with traditional power generation. In some cases, advances in technology have made renewable energy less expensive than its conventional counterparts.
On the storage front, plummeting battery costs have stemmed from a global focus on the battery supply chain. This includes giga-factories producing lithium-ion batteries globally, driving down cost and increasing the efficacy of cells. This further increases the financial attractiveness and subsequent increase in deployments/use cases, driving the demand and growth cycle.
The electrification of transportation is one of the biggest drivers of the movement toward renewable energy and is feeding demand for storage options. The electric vehicle (EV) market is the largest foreseeable market for batteries in the next 20 years , driven by consumer sentiment, mass adoption by automotive OEMs, and state and local governments’ incentives. In fact, by 2030, EVs are expected to account for 30% of the global market share, with full price parity compared to ICM (Internal Combustion Motors).
Energy storage is expected to experience record growth in 2021, as annual installations will exceed 10 GW (gigawatts) in annual storage installations for the first time, increasing from 4.5 GW in 2020. The most significant contributors to this growth are the United States, mainland China, and Australia, which are predicted to contribute a combined 4.5 GW of the increase.
Behind-the-meter storage is also expected to increase as demand charge management, rate tariffs, and time-of-use arbitrage drive consumer choice in favor of renewable energy storage options. Favorable regulatory and incentive environments—both those currently existing and those anticipated under the Biden administration—further promote growth.
These trends are driving M&A and capital-raising opportunities for companies across the energy storage value chain. While the current momentum remains on opportunities in front of the meter—providing grid-scale storage for utilities and municipalities—there is also growth in both industrial and residential opportunities behind the meter.
Valuations in energy storage are frothy across the industry, particularly relative to the nascency of the market. Investors are betting big on a macro level: assigning attractive valuations for companies that are currently losing money and are not expected to be profitable for five years or more. As renewable energy continues to mature as an industry, energy storage is clearly viewed as an inseparable component of that growth.
In a deal advised by Cascadia Capital, Powin Energy, a leading battery energy storage company serving the utility-scale market, received a growth equity infusion of more than $100M from Trilantic Capital Partners and Energy Impact Partners.
In late 2020, Fluence, a leading company in the grid-scale energy storage space, received a commitment from the Qatar Investment Authority for a $125M minority stake at a valuation above $1 billion.
Additionally, in late 2020, in a SPAC transaction, Stem, Inc. merged with Star Peak at a valuation of approximately $1.35 billion. Stem’s AI-driven smart grid technology helps support green forms of energy by charging during hours of low usage and providing backup when demand is high. The merger provides Stem an estimated $608 million in gross proceeds to invest in its emerging technology.
These three transactions represent capital flowing to leading companies in the energy storage space at very strong valuations.
The rapid expansion of the energy storage market is poised to be the most significant growth story in the larger energy value chain, impacting sub-verticals from utility-scale and C&I (commercial and industrial) to electric vehicles and consumer products. Energy storage companies looking to capture the massive M&A market opportunity will need to focus primarily on innovation, commercialization of products/services, and scale.
The current wave of large, utility-scale development will continue as grids build capacity. This wave is supported by more nuanced efforts behind the meter, largely driven by state regulation and subsidies for buildings and microgrids.
Energy storage companies are developing new battery technologies (anode, cathode, electrolyte, various chemistries) as well as other energy storage approaches (e.g. thermal, mechanical, kinetic, hydrogen, pumped hydro, etc.). The companies with the most deployments and well-established use cases will be most attractive to investors.
With a track record of deals in the energy storage industry, Cascadia’s expertise provides a lens through which to examine how these trends may impact your company’s M&A and capital-raising alternatives. Please do not hesitate to reach out to our team to discuss.
Senior Vice President