In the first half (1H) of 2023, corporate funding for energy storage companies reached an impressive $7.1 billion across 59 deals, according to Mercom Capital Group’s 1H and Q2 2023 Funding and M&A Report Storage and Grid Report.

Although this represented a 55% year-over-year (YoY) decrease compared to the unprecedented $15.8 billion raised in 60 deals in 1H 2022, it’s crucial to note that LG Energy Solutions’ massive $10.7 billion IPO in January 2022 significantly skewed the YoY comparison.

Nonetheless, the energy storage sector bounced back in the second quarter (Q2) of 2023, attracting $4.9 billion in 32 deals, an impressive 126% increase quarter-over-quarter (QoQ), and a substantial 67% increase YoY.

Venture capital (VC) funding for energy storage companies showcased strong growth, rising 27% YoY in 1H 2023. A total of $3.8 billion was invested across 43 deals, compared to $3 billion in 48 deals in 1H 2022.

In Q2 2023, $2.7 billion was invested in 24 deals, a remarkable 148% increase QoQ from Q1 2023’s $1.1 billion in 19 deals.

The Top 5 Energy Storage VC funding deals in 1H 2023 were: the $944 million and $400 million secured by SK on in two separate deals; Libode New Material’s $375 million raise; and the $300 million each raised by Electriq Power and Our Next Energy.

According to Raj Prabhu, CEO and Co-Founder of Mercom Capital Group, one interesting trend observed in the energy storage sector was considerable funding for battery materials.

“Investors recognize the critical role of these materials in meeting the rising demand for batteries and are investing in mining and other essential elements. This strategic approach ensures a stable supply chain for battery production and enables the industry to scale effectively,” said Prabhu.

“The surge in funding can be attributed to supportive policies worldwide. Notably, the U.S. Inflation Reduction Act (IRA) has been a driving force in attracting investors by offering subsidies and incentives for energy storage companies and mandating domestic manufacturing. Similarly, European countries and other nations have implemented policies to encourage cleantech investments, solidifying energy transition as an unstoppable global movement,” added Prabhu.

During the first half of 2023, the announced debt and public market financing activity in the energy storage sector amounted to $3.3 billion across 16 deals, reflecting a decrease compared to the same period in 2022, during which $12.8 billion was raised through 12 deals.

In 1H 2023, 17 publicly announced funding deals for energy storage projects brought in a combined $4.1 billion. This represented an increase compared to the first half of 2022, when 16 deals brought in $3.8 billion.

In the same period, eight energy storage mergers and acquisitions (M&A) transactions were completed, with only one of them being publicly disclosed. This figure was lower than the 13 deals completed during the first half of 2022, of which six disclosed financial details.

According to Prabhu, M&A activity has declined as companies often rely on borrowing to fund M&A deals, and with elevated borrowing costs, many are reconsidering their timelines for such transactions. This has resulted in some deals being pushed back or delayed as companies strategize for a more favorable financial environment.

“It’s essential to recognize that the slowdown does not indicate any inherent weakness in the industries. On the contrary, energy storage remains more critical than ever for successfully integrating intermittent renewable sources like solar and wind. The demand for energy storage solutions continues to be strong, driven by supportive policies and global energy transition goals,” said Prabhu.

“Companies are hopeful that the interest rates will eventually stabilize and start trending down, allowing the industry to regain momentum. As the borrowing costs become more favorable, we can expect renewed vigor in investment activity, leading to greater growth and development within the energy storage sector,” Prabhu added.

Smart Grid

The smart grid sector also grew substantially during 1H 2023. Corporate funding for smart grid companies increased by 64%, reaching $1.8 billion in 33 deals compared to $1.1 billion in 25 deals in 1H 2022. VC funding experienced a 32% surge, with $986 million invested in 1H 2023, bolstered by significant investments in smart charging infrastructure, software, and hardware.

One of the major drivers behind the surge in funding for smart grid companies is the accelerating adoption of electric vehicles (EVs). As the automobile industry shifts towards EVs, there is a pressing need for robust charging infrastructure, spurring investments in charging technology, software, and hardware companies.

During the first half of 2023, several noteworthy Smart Grid venture capital (VC) funding deals were recorded. The top five deals included Driveco, securing an impressive $273 million; Jolt Energy, receiving $162 million; SPAN, acquiring $96 million; Virta, attaining $93 million; and EO Charging, obtaining $80 million.

Smart Grid companies raised $839 million through seven deals during 1H 2023 under debt and public market financing. This was a significant increase compared to the $307 million raised in four deals during the same period in 1H 2022.

There were six Mergers and Acquisitions (M&A) deals in the Smart Grid sector, during the first half of 2023, with three publicly disclosed. This marked a decrease from the ten transactions recorded in 1H 2022, two of which were publicly disclosed.

“While the energy storage and smart grid sectors are experiencing robust growth, potential obstacles exist. Financial conditions and fluctuating interest rates could impact the pace of funding and slow the sector’s progress. However, with steadfast support from favorable policies and incentives, the energy transition is set to continue unabated,” Prabhu concluded.

The report encompasses a comprehensive coverage of 227 companies and investors. It spans 99 pages and includes 103 charts, graphs, and tables. To get a copy of the report, please visit: https://mercomcapital.com/product/1h-q2-2023-funding-ma-report-storage-grid