The global energy storage sector witnessed a 432% increase year-over-year (YoY) in corporate funding, totaling $11.7 billion across 29 transactions, from $2.2 billion in 27 deals.

The findings were published in Mercom Capital’s recently released Q1 2024 Funding and M&A Report for Storage and Grid.

Compared to Q4 2023, funding surged by 216%, surpassing the $3.7 billion raised in 26 deals.

Raj Prabhu, CEO and Co-Founder of Mercom Capital Group, said, “Two significant debt deals skewed the numbers higher this quarter. Yet, when we exclude these transactions, the figures are similar to Q1 2023.”

Notably, Northvolt‘s $5 billion debt financing and Automotive Cells Company‘s $4.7 billion debt funding constituted 83% of the corporate financing in Q1 2024.

Prabhu noted an interesting trend in the context of venture capital (VC) funding. He said, “VC funding in the solar and storage sector revealed a significant disparity, with solar receiving half of what energy storage companies garnered. Despite challenging macroeconomic conditions, VC investment is flowing into technologies within the energy storage sector, which holds enormous potential.”

“Storage appears to be at a stage akin to where solar stood 8-10 years ago in terms of investment into technologies, while VCs have shifted focus towards downstream companies in solar as the sector has matured,” Prabhu added.

VC funding for energy storage companies experienced a 9% YoY increase, totaling $1.2 billion across 23 transactions in Q1 2024, compared to $1.1 billion raised in 19 deals.

Quarter-over-quarter (QoQ), the funding was up 92% from $625 million in 18 deals. The sector continues to attract investments driven by various incentives from the Inflation Reduction Act (IRA) for energy storage.

Prabhu said, “Undoubtedly, the IRA has significantly driven the energy sector. Initially, incentives were limited to the 30% investment tax credit for solar plus storage projects. However, now it extends to standalone storage, making it extremely appealing.”

He also cited California’s “Net Metering 3.0 program” as a catalyst that incentivizes battery storage installations, which offer better returns when combined with solar.

Among the top five VC funding deals were Natron Energy, which secured $189 million; Ascend Elements, which raised $162 million; Antora Energy, which received $150 million; Lilac Solutions, which raised $145 million; and Lightshift Energy, which raised $100 million.

During Q1 2024, debt and public market financing announcements in the energy storage sector reached $10.5 billion across six deals, primarily fueled by Northvolt and ACC debt funding arrangements.

This marks an 855% increase compared to Q1 2023 when $1.1 billion was raised in eight deals.

Citing other reasons for propelling growth and investment in the sector, Prabhu said, “Moreover, battery recycling is gaining momentum as the IRA also drives investments in this area.”

In terms of technology, lithium, although a longstanding player in the battery industry, is witnessing a surge in innovation aimed at enhancing its efficiency and stability.

The Mercom Capital CEO explained, “Although lithium-ion batteries dominate a large segment of the market, they have their challenges. Alternative energy storage technologies continue to receive funding.”

The Mergers & Acquisition (M&A) activity in the energy storage sector also surged in Q1, with eight transactions recorded, doubling from the four M&A deals in Q1 2023. However, energy storage project M&A deals saw a 50% decline, with six transactions in Q1 2024 compared to 12 during the same period last year.

“Compared to solar, M&A deals in the energy sector aren’t as robust due to higher cost of capital, and it will be interesting to monitor how this trend evolves,” commented Prabhu.

Smart Grid

In Q1 2024, corporate funding in the smart grid sector amounted to $686 million across 14 deals. This marks a decrease compared to the $1.1 billion raised in 18 deals in Q1 2023 and an increase from the $314 million raised in 12 deals in Q4 2023.

During the quarter, VC funding for smart grid companies increased by 134%, with $656 million raised across 12 deals, compared to $280 million raised in 14 deals in Q1 2023.

In a QoQ analysis, funding surged 197% compared to $221 million raised in 20 deals during Q4 2023.

A substantial portion of the funding in Q1 2024 was allocated to smart charging companies.

Prabhu said, “The catalyst for this surge in activity is again the IRA, which provides substantial incentives for EVs. For instance, purchasing an EV can yield a $7,500 rebate in the U.S.”

However, pointing towards the lag of charging infrastructure, Prabhu believes that we must address the infrastructure gap to truly bolster EV demand.

“Presently, we lag significantly behind, with one charging station for every 15 gas stations, according to a report. Nonetheless, there is a flurry of innovation underway to bridge this gap.”

In Q1 2024, the top five VC funding deals in the Smart Grid sector were as follows: Electra secured $330 million, Powerdot received $108 million, Monta obtained $87 million, Trojan Energy secured $33 million, and BluSmart raised $25 million.

Public market financing in Q1 2024 amounted to $30 million across two deals, contrasting with four deals totaling $777 million in Q1 2023.

Regarding corporate M&A activity, there was a single transaction in Q1 2024 compared to four transactions in Q1 2023.

Prabhu noted, “Around two to three months ago, projections suggested that the Federal Reserve would lower interest rates, suggesting a market recovery in Q2 or the first half of the year. However, the current high inflation rates may delay market recovery. We are closely monitoring how this could impact the investment landscape.”

Mercom Capital Group’s Energy Storage and Smart Grid Funding and M&A Report covers 234 companies and investors. It is 88 pages long and contains 64 charts, graphs, and tables.

To get a copy of the report, visit: https://mercomcapital.com/product/q1-2024-funding-ma-report-storage-grid/