Leading the charge: How to invest in the nascent, but lucrative, electric power storage sector

 
Harriet Green
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Tesla Unveils New Battery System
Tesla announced this month that it’s using cells produced at its gigafactory to double the capacity of the Powerpack, its commercial stationary energy storage system (Source: Getty)

One word captures the holy grail for the energy industry: storage. A Carbon Trust report from March found that better energy storage could save £2.4bn a year by 2030 in the UK. If certain regulatory hurdles are overcome, this could rise to £7bn a year.

New developments and innovations are coming to market all the time. Future-gazing US firm Tesla announced this month that it’s using cells produced at its gigafactory to double the capacity of the Powerpack, its commercial stationary energy storage system. It has also announced Europe’s first utility-scale battery – which will be installed in Somerset, of all places. Then there are inventions like aqueous solar flow batteries, the first of which was unveiled by researchers at Ohio State University last year.

“There is a huge and exciting market ahead,” says Joe Warren, managing director of London-based Powervault, which makes storage systems for the home. The combination of rising energy prices and the plunging cost of lithium-ion batteries mean we’re “at a tipping point”, according to a recent report by KPMG: it will become cheaper to store energy than buy it from the grid. This is happening alongside attempts to find “reserve power” solutions to manage the problem of renewables only offering intermittent energy (generating only when the sun is shining and the wind is blowing).

Due to rising energy prices and lower lithium-ion battery costs, we’re reaching a tipping point

But the evolution of storage could reset this question. “Batteries are, I feel, going to be the winners in this sector,” says Oliver Hughes, partner at Oxford Capital. At the moment, the cost of battery provision is still too high to store then release energy when required, he explains – even though costs are coming down, the market “only makes sense from an investor perspective if there’s an ability to load shift”. Load shifting means drawing power when markets are cheap, then releasing it when supply is constrained.

An emerging beast

The key question is, however, whether this is a market that will evolve as centralised or decentralised. On the one hand, says Hughes, we could see a large-scale centralised battery system brought into the grid, storing power and controlling it. On the other, there’s the opportunity for a network based around individual or hyperlocal collection and use. “The big unknown here is around electric vehicles (EVs),” Hughes says.

Their effect on the market will be twofold: one, their proliferation (Hughes expects mass penetration to take between five to 10 years) will place far greater demand on the grid. Two, using them could actually help solve the power challenge for the grid – and for individuals. Imagine if you could power parts of your house from your car battery when it is in the drive, or if your autonomous car popped home to charge your fridge and jacuzzi while you were at work. “We don’t know what the outcomes are going to look like yet. An interesting aspect will be how the government brings things together from a regulatory and infrastructure perspective,” says Hughes.

Aside from Tesla, Nissan and VW are large players in the electric vehicle market

And other government initiatives are helping the industry progress. By 2020, smart meters will have been rolled out across the UK, “transforming the market. It’ll mean all homes could benefit from an energy storage system without having solar panels,” says Warren. What’s more, almost 1m Brits already have solar panels on their roof. “This is a rapidly growing market with plenty of competition – which is good; there’s plenty of room for more than one player,” he adds. Powervault is set to launch a product next year based on recycled batteries from EVs – another potentially major innovation.

Companies to keep in mind

When it comes to companies to consider as an investor, on the EV front, aside from Tesla, Nissan and VW are large players in the market. Firms funding battery research include General Motors and Toyota. Samsung SDI wants to move further into electric vehicles and energy storage, and then there are smaller unlisted firms like rechargeable battery R&D specialist Oxis Energy, UK-based Faradion and German-based Sonnenbatterie, which launched a plug and play energy storage system for the home in late 2015. Both Hughes and Warren emphasise the role that ancillary firms will play, too: charging point companies, along with those that make the parts for batteries.

“If there’s an underlying piece of equipment, and contractual income on that, it becomes a very interesting investment opportunity,” says Hughes. Access for private investors used to be wider – some storage startups fell under the Enterprise Investment Scheme, until the Treasury tightened the rules last year. That said, there are opportunities to invest in some firms via Aim, and investors may choose to look at equity crowdfunding platforms. Powervault, as an example, raised £750,000 on Crowdcube this year. “We’ll be raising money again next year. We are talking to strategic investors, but there may well be another opportunity for private investors,” says Warren.

This article appears in the October edition of Money magazine.

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