Global corporate funding in the energy storage sector witnessed a 31% year-over-year (YoY) decrease during the first nine months (9M) of 2023, with a total of $15.2 billion raised across 94 deals. This contrasts with the $22 billion secured by the sector through 93 deals in the same period last year.

The findings were revealed in Mercom Capital Group‘s recently released report titled 9M and Q3 2023 Funding and M&A Report for Storage and Grid.

Mercom Capital Group CEO Raj Prabhu said, “Corporate funding for 9M has dipped, but venture capital funding is on the rise. A massive $10 billion IPO deal of LG’s battery company last year heavily skewed the comparisons. When we look at the broader historical context of the last five to six years,  funding in energy storage remains strong.”

The third quarter (Q3) of 2023 witnessed a 67% quarter-over-quarter (QoQ) surge in corporate funding for energy storage companies, with $8.2 billion raised in 35 deals, a substantial increase from the $4.9 billion collected in 32 deals.

Venture capital (VC) funding in the sector saw a substantial 115% YoY boost in 9M of 2023, with $8.6 billion across 68 deals.

Prabhu highlighted the strength of VC funding for storage companies, noting, “VC interest in storage companies remains robust.” He pointed out the trend of consistent YoY increase in funding for battery storage companies. This trend is reminiscent of the growth witnessed in the solar industry seven or eight years ago.

He also anticipated a bright future for the sector, with emerging technologies beyond lithium-ion on the horizon. There is potential for two or three alternative battery chemistries to gain significant market share in the coming years, which could continue to pique investor interest in the storage industry.

According to the report, in 9M of 2023, venture capital funding was primarily directed toward Li-based battery companies, with Battery Recycling companies following closely behind.

“This year in the United States, investment interest is being driven by the Inflation Reduction Act (IRA), which offers substantial incentives for standalone energy storage projects. This has significantly bolstered demand in the sector,” Prabhu said.

“Another noteworthy trend this year is the surge in funding for Battery Recycling companies. The newfound interest in recycling can be attributed to an IRA clause that incentivizes recycling efforts. Consequently, many industry trends and technology advancements are influenced by the IRA and its incentives. There is a growing awareness of the importance of recycling to address potential waste issues. As a result, we can anticipate increased interest in recycling companies in the upcoming quarters.”

In 9M 2023, 11 energy storage companies were acquired, compared to 23 in 9M 2022.

In terms of acquisitions, Prabhu said there has been a noticeable weakness this year. This trend is not limited to storage but is also mirrored in the solar sector. The reasons behind this divergence lie in investors’ stringent evaluation of companies, heightened demand for projects spurred by IRA, and a resultant bottleneck effect. Given the uncertainties surrounding project timelines and increased costs, investors are exercising caution.

“Contributing to this softness is the labor shortage, rising component prices, and shortages, cumulatively impacting the mergers and acquisitions (M&A) landscape. The higher cost of borrowing is another negative factor to consider. All these factors have made the M&A side of the industry less robust compared to other areas, particularly in the current year,” Prabhu added.

Smart Grid

The report found that in 9M of 2023, corporate funding for smart grid companies saw a 4% YoY increase, reaching $2.9 billion through 48 deals, as opposed to the $2.8 billion from 35 deals.

Despite substantial investments in smart charging companies, VC funding experienced a significant decline in Q3 2023, dropping by 65% QoQ, as it amounted to $248 million across 11 deals, compared to the $706 million invested in 12 deals.

In a YoY comparison, Q3 2023 VC funding in smart grid companies plummeted by 86%, down from $1.7 billion in 10 deals.

Prabhu said, “In recent years, the majority of funding in the industry has been going towards EV charging technologies, addressing the key challenges of cost and charging infrastructure that stand in the way of a full transition to electric vehicles. We’ve reached a critical juncture where some EVs can compete with the prices of traditional automobiles, indicating strong momentum in this direction.”

The announced debt and public market financing for Smart Grid companies in 9M 2023 increased 454% YoY with $1.7 billion in 11 deals compared to $307 million in four deals in 9M 2022.

In terms of M&A activity, there were eight Smart Grid transactions in 9M 2023, a notable decrease from the 18 transactions recorded in the same period in 2022.

To get the full copy of the report, please visit: https://mercomcapital.com/product/9m-q3-2023-funding-ma-report-storage-grid/