Boston Consulting Group released a research update on energy storage.
In this report, the team suggests that Compressed-Air Energy Storage or CAES could be a strong intermediary technology for stationary energy storage. This based on the assumption that the current costs for batteries are still relatively high. CAES offers lower upfront CapEx. However, the technology is somewhat dependent on fossil fuel, provides low efficiency and its operational flexibility is questionable. For the time being, Utility providers can still absorb the relatively low variability of supply from wind power (which makes up only 2% of the US energy mix today) and thus CAES is a viable interim solution. Should the variable component of the energy mix raise to 20% or thereabout and energy supply from those sources renewable sources outstrip demand, grid operators will face significant risks. (see Rachel Johnson’s article ‘Energy Storage: enabling a shift away from baseload generation‘ on ifandp.com)
Interestingly, the BCG team sees Hydrogen Storage Tech as the tech-app that will super seed CAES in the medium term (post 2020). The business case is simple. Today, 100 gigawatts of pumped energy storage exists globally. ‘More than 1GW of stored power relies on technologies such as CAES or batteries, and an additional 4GW of electricity storage projects have been announced.’
The global market demand for energy storage solutions is likely to scale as Renewable Energy becomes more widespread amongst the energy mix. The addressable market is estimated to be €1bn today, increasing to €2-3bn pa until 2015 after which this could steadily rise to €4-6bn annually to 2020. After 2020, BCG sees the global market at €10bn per annum and possibly more.
So how should we play it? Where is the investment opp? Firstly, VC and PE firms alike see significant value in the electricity segment which is probably no news. Yet, capitalizing on the opportunity appears harder than at first glance. In a nutshell, the investment case is simple from a utility perspective as ultimately the market will end-up as ‘coupon-clipping’/ bond like investment model. As we have pointed out on a number of previous posts, lithium-ion battery technology companies are worthwhile having a look at. Obviously, the pure-play investment would be into the raw-material market, i.e. investment in commodities. The price volatility may not be for the faint hearted, however.
The electric vehicle market is probably closest to the consumer and is in itself another interesting and very contested market with significant fragmentation at this stage. This should enable the savvy investor to earn a substantial return if one is able to estimate which firm will end up grabbing a significant market share. ‘Independent’ electric vehicles producer have certainly grabbed headlines in the past few years but whether they have the business execution capabilities, global distribution, and marketing competence remains to be seen (we think of Tesla, Th!nk City et al). For our part, we monitor what the global middle-class car manufacturers including Mitsubishi, Peugeot, Renault and Volkswagen are up to. General Motors appears to have found a new footing by refocusing their efforts on the E-segment and is likely to have the distribution power that will be needed to pay for the CapEx and OpEx required to succeed in the race to E-Vehicle glory. On the marketing side, BMW has recently unveiled that it will call its E-fleet ‘BMW-i Born Electric‘ analog to Apple’s iPhone, iPad etc series. We will have to wait and see whether BMW can live up to consumer expectations.
BCG further suggests that manufacturers of components linked to energy technology could be an interesting play. Examples include, pumps, compressors, turbines, inverters, switchgear. We agree, yet at this stage clear segment leaders have yet to emerge whilst process design is still emerging and efficiency in all design steps are still being developed. Technology start-ups are sitting in the starting blocks to either receive Series A funding or indeed are waiting for re-ups after the trough periods 2009/2010. We continue to focus on energy storage as one of the most viable ways to make money in renewable energy for investors.